Archive for the ‘Politics’ Category
Thursday, October 21st, 2010
So this week, much to everyone’s surprise, Beijing blinked.
For months, China has been under growing pressure to let the value of its currency, the yuan, rise to reflect China’s growing might and to meet America’s need for a weak currency export competitiveness boost to get it over this indigestion it’s still experiencing.
For months, China has resisted, while continuing to lap up US Treasury bonds, the next tranche of which was signalled this week by US Federal Reserve chair Ben Bernanke.
Already known already as “QE2”, or the second round of quantitative easing – the polite rich world way of saying “printing money” – there would appear to be a truck-load more American debt coming to market to keep things moving in the world’s biggest economy as the fiscal expansionism recedes.
Everywhere in the First World, governments are spending less than they were to keep the ship afloat during the financial crisis. Now, it seems, monetary policy will pick up some of the slack, leaving global interest rates low for the foreseeable future.
What a pity everyone’s too gun-shy to bolt for equities at times like this.
However, this week, the Chinese authorities signalled what everyone has suspected – their economy is growing far too fast, inflation is a risk, and it’s time to cool it. Data due for public release today should confirm this.
So, Chinese official interest rates went up, in the first serious response to Western pressure to recognise the inevitable: that China is getting rich fast, and that rich countries’ currencies get stronger.
Just one problem: unlike the West, there’s no market-driven link between official interest rates and the exchange rate. So, from a US perspective, the yuan is as undervalued as ever, since higher interest rates have had no impact on the currency.
Still, just to show they’re sometimes willing to play fair, China has changed one thing. Instead of raising its official interest rate by, say, 23 or 27 basis points, it has this time gone for 25 basis points.
To those who watch these things closely, that in itself is significant. The obtusity of picking interest rates that resembled but weren’t the same as the West’s was a long-standing part of Chinese Communist Party repartee.
The use of a 25 basis points move is seen as a finger-wave in the direction of falling into line with Rich World standard financial practice.
Meanwhile, in China itself, Fonterra has just announced it’s spending $42 million on another Chinese dairy farm, to be stocked with cows from New Zealand.
Not a huge purchase, but obviously important enough for Fonterra to drag a bunch of New Zealand journalists to Beijing to see the deal inked, among them our own Jonathan Underhill.
Intriguingly, given the debate at home on foreign ownership of farmland, the Fonterra deal is underpinned by a long-term lease, private ownership of land being impossible in the People’s Republic.
And the deal coincides, whether by design or accident, with an impassioned proposal from a Beijing resident Kiwi business leader for New Zealand to adopt a leasehold model to deal with New Zealanders’ fears about foreign farmland sales.
David Mahon is no dummy. He’s one of the most respected sources of advice for New Zealanders looking to trade in China and head of New Zealand Trade and Enterprise’s Beach Head Programme there.
By converting all farmland to leasehold, Mahon says New Zealand could more easily deal fairly and rationally with Chinese or any other foreign investor.
To do otherwise – especially to ban foreign farm ownership – would be an “irrational, retrograde and racist act,” Mahon says.
“New Zealand must not even suggest a return to those paranoid years.”
Could Mahon be onto something? The Save the Farms campaign has enough money to gain traction, and the festering national debate on foreign, especially Asian, farmland ownership continues. Could a leasehold approach lance the boil?
Think about it: the apparently unachievable demand by Federated Farmers chairman Don Nicolson for “reciprocity” of investment rules between nations that buy our farms would be achieved with Chinese investors if they could only buy long-term leases, not the land itself.
“The question before New Zealand is not how to block foreign investment in the agricultural sector, but rather how to prevent the purchase of agricultural land by interests that will not develop it to its full potential,” says Mahon.
“As long as land can be purchased without the obligation to use it for the common good of all New Zealanders, the country’s economic future, which depends so much upon agriculture, is in doubt.”
Of course, there are a few snags. Leasehold land is less valuable than freehold, so anyone looking to sell or concerned about the value of their land is not going to like it.
But hey. Just today, an anti-union protest in Wellington involving the groovily grungy film production community way out-numbered an earlier protest march marking a national day of trade union action and solidarity.
These are topsy-turvy times. Anything could
Friday, October 8th, 2010
Was the row about The Hobbit a historic moment in New Zealand labour relations? It certainly looks like one for anyone attempting to justify a “right wing” labour agenda.
Pushed by international actors’ unions into stirring up the issue of minimum “employment” conditions and allowing talk of a Hobbit “boycott” to go unchecked for days, Actors’ Equity in New Zealand ineptly attempted to whip up solidarity among the workers, but found it rather thin on the ground.
Actors and crews in New Zealand appear to prefer to be contractors. In fact, all Equity was arguing for was a better minimum contract, but that got lost in the overheated scrum created by the heretical thought of losing Middle Earth to Transylvania.
These people and the companies they run are happy with the idea of a minimal conditions contract for a big budget feature film – which is actually already on offer and looks surprisingly good. What they weren’t interested in was making such a fuss.
Add to that the unexpected Warner Bros. offer of “residuals” payments as part of a standard contract for The Hobbit, and it looks as if the major studios just won a round in the labour costs war rather convincingly, to the likely betterment of the New Zealand film industry.
New Zealand’s highly talented, competitively priced and best of all pragmatic film workforce remains flexible and affordable, except that local participants get a new incentive to do the best job they can possibly do on the film, to improve the long term “residuals” – returns from the lifetime earnings of a hit movie as a multi-media product.
If that’s not the strategy that’s been employed here, then it should have been.
But it also means that the loveys who were part of Helen Clark’s political bedrock turn out, on inspection, to be entrepreneurial, small businesspeople with a distinctly Employment Contracts Act outlook on life.
They are the seniors, in their 30s to 50s, of a generation of 18 to 30 year-olds who expect to work more than one part-time job,
and to be endlessly on call or cancellable. It sucks, but it doesn’t occur to them that a union might help them out.
My theory is that it’s very significant that Warner Bros. is offering residuals contracts – upside for actors if the film succeeds – and that it’s a reward to the way the NZ film industry works – highly flexible, non-unionised.
The big film companies don’t offer this in the US, Australia, UK and it frightens these English-speaking crews and actors to think more work will end up in NZ.
It’s tempting to speculate that they got wind of the residuals part of the proposed deal and tried to derail it by trumping up a “boycott” – which actually never existed – and having the Australian union director, Simon Whipp, in New Zealand all last week, with the local president, Jennifer Ward-Lealand virtually incommunicado to media.
Would English-speaking actors’ unions in the US, UK, Australia and Canada, on getting wind of the residuals offer on The Hobbit be so concerned as to try and wreck the production rather than allow such a powerful entrenchment of contractually incentivised employment?
Tempting, but a long bow, although with American unions describing New Zealand productions as “runaways” that should never have left the US, there is at the very least a conflict of interest between unions representing actors in crews in competing countries.
The observation is all the more tempting when the relationship between Actor’s Equity in New Zealand and its Australian master, the Media, Entertainment and Arts Alliance, is examined.
In a barely reported admission on TV3’s The Nation last Sunday, it was revealed that Actors’ Equity was deregistered last week, having failed to lodge annual returns for three years – a classic sign of poor governance that would leave an organisation wide-open for manipulation.
President Jennifer Ward-Lealand conceded on The Nation that this loss of legitimacy to represent New Zealand actors was indeed an “administrative error”, but indicated that since the New Zealand union is strictly a chapter of the MEAA, it was led out of Sydney by Whipp, the MEAA’s national director.
Could this be why Ward-Lealand was widely reported as being unavailable to media, and why the New Zealand union’s position was allowed to remain unclear for days, creating maximum instability around The Hobbit, which has struggled to be green-lit but is close.
Certainly, Whipp was in New Zealand last week when The Hobbit mess blew, and was the butt of Sir Peter Jackson’s initial, provocative charge of Aussie bullying which kicked the story off.
At the very least, the institutional weakness of the actors’ union can be seen to be ripe for manipulation by a bigger foreign agenda, which might stretch the bonds of Solidarity Forever, if successful.
Thursday, September 9th, 2010
Let’s get one thing straight. Earthquakes are not good for the economy.
There’s been some feverish talk about the damage to Christchurch being some kind of god-send for the construction industry, especially after last week’s prediction of a collapse in activity in that sector, with 20,000 to 30,000 jobs at risk.
But try painting the destruction as good news for someone whose house is threatened with collapse on the next big after-shock. Don’t expect a sympathetic reaction.
Yes, it’s true that there’s suddenly a lot of work in Christchurch for anyone skilled in wielding first a sledgehammer and then a normal hammer.
But an earthquake is only good for the economy in the same way that wars are: once everything’s been wrecked, it needs to be rebuilt.
But what do you have once you’ve rebuilt? You have what you had before, only newer.
Admittedly, there will be an opportunity to throw some Batts in the ceilings of elderly homes that are temporarily unroofed, and some property owners will take the opportunity to renovate earlier than they might have. Nationally, retailers of baked beans, torch batteries and big bottles of water will probably report a stronger month than usual.
But there is still virtually no productivity gain, no new long-term economic activity generated, and no addition to the national balance sheet from reconstruction in the aftermath of a disaster.
That’s why insurance stocks fell on Monday morning, while shares of companies like Fletcher Building and Steel and Tube took a jump up. The insurance bucket will tip some funds into the construction bucket, but it’s still a zero sum game.
Likewise, the Earthquake Commission and the government will spend money to put things right, but every cent of that comes off the asset side of the Crown accounts. As Prime Minister John Key made clear this week, the government may well have to lift its self-imposed cap on new spending to meet the emergency demand.
Thankfully, there is headroom to do this. As Standard & Poors’ noted when maintaining the country’s current credit ratings earlier this week: “There is likely to be a negative impact on government finances, but we believe that the Crown’s very low debt burden … provides it with some room to absorb increased spending on reconstruction.”
Someone should tuck that “very low debt burden” comment away for a rainy day, since fears about the government debt picture were enough to have Ministers scurrying to international financial centres just 18 months ago, on the fear of a downgrade.
In a sense, the earthquake spend is the physical equivalent of the South Canterbury Finance bail-out: it’s a good thing we were prepared for it, but it’s still a damned nuisance. It will not only siphon off capital and investment into repairing the damage, but it will also sap government focus from its wider economic policy challenges.
The clearest proof of that is that Key is cancelling important international travel to deal with the issues and the Minister of Economic Development Gerry Brownlee is on point duty as the Minister of Shaky Buildings in Christchurch for the foreseeable future.
It’s hard to see a lot of focus going into the Economic Growth Agenda while the earth’s still moving down south and the government remains in crisis management mode.
Of course, handling a crisis well can be a powerful political fillip – Christchurch mayor Bob Parker’s chances of re-election look only to have been improved by the earthquake. But any sense of dithering, inaction or inadequacy of response will be leapt on by news media that by now are running out of ruined shops to stand in front of and are looking for fresh angles.
Hence Key’s about-face on going to London this weekend, a decision almost certainly driven as much by signs that the Press Gallery scented a classic beat-up in which Key staying at the Queen’s private residence could be portrayed as insensitive junketing.
Meanwhile, banks, power companies and unpopular businesses like Hong Kong-backed would-be buyers of the Crafar farms, Natural Dairy New Zealand, have fallen over themselves to be generous.
Where Fonterra gave $1 million in relief, NDNZ – a much smaller enterprise – pledged $250,000. The million dollar pledge from Contact Energy, whose reputation has suffered ever since blundering into an increase in both its tariffs and its directors’ fee pool almost two years ago, is the largest single donation it has ever made, in a market where competition for customers has been particularly fierce.
Bank chief executives, normally unavailable and remote, have been offered on a plate to reporters to discuss their quake-sponsored benevolence.
Not that any of this is bad. Canterbury has a daunting clean-up on its hands, so assistance is welcome, irrespective of the wider agendas that may fuel it.
Nor is the news from the earthquake itself all bad. It’s not a complete accident that nobody died in Saturday morning’s big shake. It must be, in part, a testament both to the value of well-enforced building codes and to the country’s specialism in earthquake engineering.
Those investments, made in good times, have borne fruit in this catastrophe. While the cost of the clean-up may hit $2 billion and do nothing in the long run for economic activity, it’s also true that the cost could have been so much higher.
Tuesday, August 24th, 2010
Now, the government has an economic story to tell.
By reframing as a national savings issue the sterile debates about superannuation, privatisation, private foreign debt levels and the sale of farmland to foreigners, the potential is there to de-fang several political bugbears at once.
There is a compelling simplicity, too, to the idea of talking about how we save more, rather than what we spend the savings on; this being the point at which the debate so often goes off-track.
With the current national pension system off-limits for consideration by the new Savings Working Group (SWG), there’s an opening for a process that isn’t tinged with outrage and fear of a Trojan Horse attack on the elderly.
By taking the heat off the question of compulsion and allowing the SWG – surely not the best acronym in the context of this week’s alcohol reforms – to look also at the tax system, Finance Minister Bill English rightly identifies that any serious look at savings culture will also need to consider taxing culture.
The notion of taxing savings differently from labour is intriguing. Watch this space on that one, but the Australian tax review suggested certain approved savings should be taxed at a discount to income tax.
Whether a government would ever be bold enough to index tax rates on savings against inflation remains to be seen. English has put it on the table, but not with great enthusiasm.
By applying indexation only to savings, he would avoid robbing future Treasurers of their trustiest weapons of mass tax-gathering: fiscal drag. Perhaps there’s a half-way house available on that one.
Already usefully established is the rejection of capital gains and land taxes, both of which were ruled out by the Tax Working Group, whose year-long deliberations produced a benign atmosphere for a GST increase and wide public support for the personal income tax cuts that will kick in on October 1.
Granted, the SWG doesn’t have a year to create consensus. It has until December, in fact, which could be said to be a bit of a rush. Its report will be published in January, setting the political agenda for the start of election year, and condemning a lot of officials to a busy Christmas.
Nor is it all plain political sailing. If, as English hinted today, a softer tax treatment for savings were offset by axing the $1 billion in government subsidies going to KiwiSaver accounts annually, he could well have a fight on his hands with the higher income parts of middle New Zealand whom he needs to vote National.
However, the timing looks right, though, if Prime Minister John Key wants a coherent savings platform to campaign on next year, and results he could turn into initiatives for the May 2011 Budget. On top of that, much of the work has already been done.
The enormous volume of research produced for the Capital Markets Development Taskforce would be as good a place as any for the savings group to start for recent work on New Zealand’s savings options and deficiencies.
In no time at all, the group will conclude that one of the biggest savings deficits in New Zealand is the lack of good businesses to invest in at home.
While there’s plenty of private wealth and private equity at work, the public capital markets are anemic, the dairy industry’s tied up in cooperative ownership, the banks are Australian-owned, and just about everything else of scale is owned by the government, both central and local.
The CMDT report strongly recommended partially privatised state-owned businesses, especially if the local control can be demonstrably entrenched to deal with the national economic sovereignty issues that the P word arouses.
If at least a chunk of the savings to make such investments in New Zealand businesses comes from the investment of compulsory retirement savings plans, then there may not be much public opposition to compulsion either.
Expect to hear a lot about the middle-aged cafeteria worker from Sydney who just loves her compulsory super savings.
From there, a new, more confident platform starts to emerge for New Zealanders nervous about the seemingly unstoppable “loss” of New Zealand assets to foreign owners. Instead of cringing defiance, we get organised about our money and start building ourselves back up.
That, in the end, is the only way New Zealand will maintain the degree of independence that the founders of the SaveTheFarms and other anti-foreign direct investment lobbies seek.
Petitions and protest might slow things down, but for as long as the outsiders have the money to buy what we at home can’t afford, the rot – if it’s really that – will only get worse.
The slightly cynical appeal of this platform for re-election is the way it marries both economic nationalism – a protectionist, anti-globalisation instinct – and economic rationalism, which the pursuit of coherent savings incentives would foster without closing the door to foreign capital.
It should be a platform that can be pitched simply to the right of centre in New Zealand politics, where National still seeks to be, and in campaigning, simplicity is everything.
It may not look it now and it may not come to pass, but today’s announcements create the bones of the most significant shift in economic orientation in a generation.
Here’s hoping something good comes of it.
Friday, August 20th, 2010
As the world economic system strives to right itself from what has been called the Credit Crunch or the Great Recession, or any other euphemistic tag designed to understate the significance of what we face, one of the very interesting recent trends has been the increasing willingness for large establishment organisations to begin talking honestly about the ‘really big numbers’.
Two examples of particular note studied the overall US situation through the eyes of the IMF and the Congressional Budget Office (CBO).
As I pointed out back in January in my look at the United States, rather than messing around trying to understand the danger of a Federal debt level heading rapidly towards 100% of GDP at US$13 trillion, sooner or later we would need to face up to the really big numbers due to the under-funding in superannuation and medicare that threatens to seriously derail the expectations of retiring ‘baby-boomers’ everywhere.
I stated the following: “if you take the present estimated shortfall in unfunded government promises in superannuation and medicare and add that to the present US Government debt, this together comes to around US$114.7 trillion. Next you take the total outstanding personal debt, then the 50 States, together with net corporate; this all amounts to about a further US$40 trillion; now add all this together (US$154.7 trillion) and divide by the population of 300 million and every person in the USA has somehow to shoulder their burden of a debt present and coming of US$515,666.”
Well, as fantastic as it may seem, I was wrong – a new figure calculated from CBO estimates by Professor Laurence Kotlikoff suggests the number should be closer to US$202 trillion, or 15 times the present GDP.
This represents what is called the ‘fiscal gap’, and is the present value of the difference between projected spending (including servicing official debt) and projected revenue in all future years. The IMF adds that the “closing of the fiscal gap requires a permanent annual fiscal adjustment equal to about 14% of US GDP”.
Now it just so happens that the present federal revenue is about 15% of GDP. So the IMF and CBO are together effectively saying that to close this fiscal gap requires a doubling of all federal taxation. This is both a political and an economic impossibility.
(And this is before we even look at the implications of an OTC derivatives market that is even now at least 15 times the size of the entire global economy, even though we don’t apparently talk about this anymore).
The question arises, how could the US fiscal gap get this enormous? The answer is very simple – the entire Western world has promised itself in retirement far more than the system can possibly provide and no-one has been brave enough to face this. It’s a political no-no everywhere. In America they have 78 million baby-boomers who when fully retired expect to collect entitlements in social security and medicare that on average exceed per-capita GDP.
As Professor Kotlikoff puts it: “This is what happens when you run a ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old, while promising the young their eventual turn at passing the generational buck.”
Or as Henry Lamb said: “Democracy collapses when the majority discovers it can vote for itself treasure from the public coffers. Democracy is the last plateau of social order before anarchy!”
And the sad truth is that our politicians have been fully complicit in this fraud on future generations for the entire period of its genesis. In fact they have encouraged it, competing with each other in the clear knowledge that the greater their promises, the more likely they are to govern.
Unsurprisingly, the waspish Mark Twain had perhaps the best line on this subject too: “Every election is a sort of advance auction sale of stolen goods.”
I’ve concentrated on the US so far for three reasons – they’re the biggest, they have the most weapons and their numbers are being studied with the greatest vigor – the rest of us are just hoping it’s all not true, and particularly, that it isn’t going to impact us personally.
Well there’s shocking news coming for anyone who thinks what they’ve been promised is what they’ll be getting. There isn’t a single chance that the deep-seated reality of demographics will not ultimately overwhelm the federal budgets of every Western country, and that the present economic crisis will one day be seen as the beginnings of such a process.
It is only now, almost three years from the first signs of trouble, that the discussions on the implications of demographics are bubbling to the surface, although it has been obvious for maybe 30 years that the numbers were simply not going to work.
The OECD has recently chimed in on the topic and its calculations bring no greater comfort – being the OECD the figures will almost certainly be conservative but for example suggest unfunded liabilities of 330% of GDP for France, 190% for Germany, 150% for Japan and 130% for Italy.
These are in addition to the existing sovereign, banking and personal exposures to debt that I have detailed in earlier posts, and which alone appear sufficiently large to permanently alter the present concept of economic (and maybe even social) normality.
When one considers that history suggests a country’s population never recovers once the birth rate drops to lower that 19 births per 1,000 and that most Western countries are in the range of eight to 14, then some serious re-thinking of the efficacy of the present capitalist model is long overdue. The evidence is that it appears to work only by the application of larger and larger dollops of debt for every participating sector, and this debt has served to mask the failure of the global system as presently constructed.
So we’re caught in a cleft stick – the planet is struggling to support more of us, but our economic system can’t function with any less of us. Japan is the clear example of a country unwilling to consider immigration but unable to maintain economic momentum based on its natural population growth alone.
It is because of this understanding that I have been banging on about these unpalatable thoughts for well over five years now, and I can’t pretend it’s been an awful lot of fun for me either. But those of us who were lucky enough to be born following World War II have a responsibility to cut the BS we’ve been feeding each other and come very sharply to our senses. We have collectively constructed financial, economic and political systems on a global basis that are unsustainable, regardless of the way the numbers are cast.
In the past the discovery of such a devastating truth has generally stimulated widespread protectionist trade policies, followed inevitably by xenophobic antagonism that has always finally led to outright war. Surely this time we will have the wits to conjure up some appropriate alternative to such a horrific result. If not then history will have taught us absolutely nothing, and not only will we actively impoverish our young, we’ll then send them off to slaughter as well.
Monday, August 16th, 2010
Not for the last time, Fonterra has had to deal with a food safety crisis in China. Perhaps for the first time, it has been able to deal with the story – at home – in a firm, low-key way.
In China, no one on the street knows who Fonterra is, but they know they want to drink milk products from New Zealand because the local stuff is so dodgy.
First it’s melamine, some toxic chemical that gives babies gall-stones or something, and now a product that makes small girls grow breasts? These are public relations nightmares, but hopefully and rightly, only for the brands involved, which only Chinese consumers have ever heard of.
Fonterra, paradoxically, can expect to win from this latest Chinese food safety scare in the same way as it did after the San Lu melamine disaster.
Obviously, Fonterra didn’t welcome the wealth destruction that came with losing the San Lu brand, but it did help the New Zealand brand.
The fact is that the institutions of a civil society as we understand them don’t work that well in China.
There’s a lot of corruption, and state governments make the rule of law precarious and full of surprises for foreigners investing in an authoritarian one-party state that’s also getting rich.
The attempted bilking of NZX-listed Copthorne Millennium Hotels by one Cheung Ping Kwong is a case in point.
Cheung was a shyster straight from the pages of Tim Clissold’s classic account of modern Chinese capitalism, “Mr China”.
Millennium says he used intimidation to make off with the company seals of a joint venture company, then sold properties worth US$44.9 million, approximately 28% of its net assets, to various associates. Some $21.5 million is Millennium’s share of the remaining exposure.
The company is now “heavily dependent on the assistance and cooperation from all the relevant official authorities” to chase Cheung, who may have some degree of “untouchability”.
By comparison, the process of applying to buy land in New Zealand seems farcically ethical by comparison, and that’s partly the point.
In a country where you don’t trust the government or food producers to act in your best interests, one of the first things you’ll do when foreign products start appearing and wealth starts accumulating is to buy them if you can afford them.
The Chinese will use their new-found wealth to buy many things, and in food, it will partly be trust, which New Zealand has in spades.
Forget the reality of dirty dairying and campylobacter from dodgy chicken raging through too many of the nation’s digestive systems. They can’t go on unchecked, and they probably won’t. Gormless we may be a bit, but this country has a good name when it comes to natural products.
Yes, China buying farmland in New Zealand is partly about securing food production for a billion-plus citizens who now have money.
But this food trustworthiness is also a major part of the value inherent in New Zealand agricultural production.
Fonterra is our best-placed entity to ensure the country profits from this sometimes frightening opportunity to deal with an emerging superpower.
Hence the leadership it shows in farming politics that is so starkly absent in traditional quarters.
But Fonterra cannot be complacent. Repeated food safety scares could put consumers off the products altogether, and just like Nike had to monitor factory conditions, Fonterra will face corporate citizenship pressure to influence Chinese food safety practice and regulation, even where it is simply a supplier.
Tuesday, July 20th, 2010
Resources Minister Gerry Brownlee cut a lonely figure in the Bellamy’s lunchroom at Parliament this morning.
Chowing down with a couple of staffers around 11.30, the place was virtually deserted. Less than an hour before, he had endured a larruping from a Press Gallery pack gleefully feeding on his humiliating backdown over proposals to mine the most protected conservation lands.
Comfort food was definitely in order.
Not that Brownlee is a man given to admitting defeat.
Challenged to conduct some “self-analysis” on the way the mining issue played out, Brownlee was more inclined to suggest today’s pullback was all part of the plan.
Had the government suggested only that there be more mining on private land or Crown land outside the conservation estate, he reckoned the visceral reaction from the environmental movement would have been the same. Asked whether today’s announcements would mean more mining could be achieved than previously, he replied: “High likely.”
Maybe. But even Blackadder would have been stretched to come up with this cunning plan.
With the benefit of hindsight, launching a pro-mining policy by proposing taking a pick and shovel to the so-called “jewels in the crown” of the conservation estate looks almost potty, and the ultimate outcome almost predictable.
Yet if that were so, why was Prime Minister John Key still talking up the removal of substantial chunks of untouchable conservation land, protected under Schedule 4 of the Crown Minerals Act, as recently as his speech opening Parliament in February?
The reality is that the policy looked, for some months, to be achievable. It provoked almost no immediate green lobby outcry and happened to fit well at the time into the rhetoric of “catching Australia” – a goal in search of a policy which gained much-needed substance when tied to something as concrete as going hell for leather for extractive industry, or as Brownlee calls it, “fast growth.”
He never pretended more mining would be the country’s saviour, but he did argue rightly that it had become overlooked and, under Labour, stigmatised to the point where an obvious source of national wealth was going begging.
With that thought driving him, Brownlee gave a speech last September in which he floated, without much in the way of 9th floor Beehive permission, the idea of rooting through the conservation estate for precious metals.
In the absence of environmentalist outcry – perhaps the focus was on the Copenhagen climate change summit – the focus went quickly to the Schedule 4 lands, where an unfortunate amount of the nation’s mineral prospectivity coincides with some of its wildest, remotest, and most scenic spots.
The sorts of places that any nationalist will get dewy-eyed about, even if – perhaps especially if – they never actually go there.
In hindsight, it seems almost as if Brownlee became so convinced that the policy was achievable that somewhere over the Christmas period it ran out of political momentum. To his cost, this coincided with the moment when the green movement finally got off its chuff and made a fuss.
A leak in March that suggested Great Barrier Island and Coromandel Peninsula were in the frame caught the government off-balance, and the rest is history. A huge crowd marched in Queen Street, the chattering classes all agreed with one another that mining was an awful grubby business, and the scene was set for another victory for high-minded self-impoverishment.
If that assessment makes your blood boil, just think about this. A person working in tourism earns on average something close to the average wage or worse, since so much of that industry is casualised and part-time.
A mining industry employee can expect to earn several times the average wage, and the value per hectare of the tiny proportion of the country that’s mined eclipses the value of any other known land use. Dairying, the farming choice du jour, is a positively embarrassing commercial prospect by comparison.
Brownlee now seeks to explain it all away. The debate has been healthy, he says, because New Zealanders have been reawakened to the truth about our mineral wealth and its potential to help lift this tin-pot country out of its low-growth, high expectations rut at far greater speed than the achingly slow and risky process of building brain-powered new industries.
To those who say there’s something immoral about mining, the only answer can be, how are you reading this column? It only appears on-line so you must have a computer full of rare earths and precious metals which, like energy, are the invisible juice of modern society. We expect their presence without acknowledging their source.
In other words, there’s nothing more immoral about those metals coming from the ground in New Zealand than anywhere else in the world. It’s just silly to suggest that such activity would have destroyed every inch of the vast acreage of conservation estate, and it’s a fact that Labour stuffed huge tracts of extra land into Schedule 4 during its time in office.
Perhaps Brownlee is right, and there is now at least in play in the New Zealand political psyche the idea that mining could be an economic help.
What’s hard to deny, though, is that there are certain immutable laws in politics. Sure, one of them is that you should always aim higher than you really mean to go. That certainly happened in this case.
But also, you should never bite off more than you can chew. By the time the government announced its proposal to carve out 7,000 hectares of Schedule 4 land for possible mining, it had already retreated to its fall-back position.
The only way to retreat from there was to capitulate.
Yes, there will be an aero-magnetic survey undertaken in Northland and the West Coast – pliable parts of the country where mining is not only welcomed but even begged for. Perhaps there will be mining there quicker than would have been case under, say, a Labour government.
Other than that, the government has ended up behind where it started.
Just watch. There are more than 80 mining concessions granted over conservation land outside Schedule 4 today.
If there are any more by election day, I’ll eat my hat – which, thankfully, would make a passable broth at a pinch.
Monday, May 24th, 2010
Remarkable in the tidal wave of approval for Bill English’s second Budget is the irrelevance of the Opposition Labour Party.
Such effective Opposition party behaviour as could be discerned around the Budget involved the dissident member of the government’s own coalition partner, Hone Harawira of the Maori Party.
While Harawira’s blast at the GST increase was reported as if Hone had broken ranks “yet again,” no one really blamed the Maori Party if it let Hone off the leash after the betrayal of the apparently reasonable expectations of Tuhoe.
Thanks to the Budget, that is now last week’s issue.
The Budget was a blinder – a document for the times. Encouraging of risk-taking in a fragile environment, and creating a bit of hope on the home front with meaningful cuts to tax rates in the “middle” New Zealand household, where the bread-winner may be bringing home $40,000 a year.
And at the same time, keeping government debt levels within completely acceptable parameters. The government’s plan works best if the economy grows, but with net debt peaking at below 30% of GDP in the near future, there is a bit of room for slippage on the public debt front.
In a ground-breaking paper drafted last December before the Greece bailout, “Growth in a Time of Debt” by Harvard and Maryland University academics Kenneth Rogoff and Carmen Reinhart suggests that public debt is only a big problem above 60% of GDP, and you only fall off a cliff at 90%.
If New Zealand can keep core government debt to around 30% of GDP, and falling – very respectable compared to Greece’s 115% public debt to GDP ratio – that’s a very good place to be, especially because New Zealand’s mainly private foreign debt, at around 130% of GDP, is way higher than is safe.
That high external debt, in turn, drives the Budget forecasts for a current account deficit stuck over the next four years at around 7% of GDP; uncomfortably high. But the Budget aims at that problem too. If other tax policy moves encourage domestic savings other than housing, a larger pool of private savings could start reducing private sector dependence on foreign sources of debt and capital.
The cut in the corporate tax rate is right for the times, too, and it matches the sensibilities of a right-leaning government that’s keen on mining, just as much as tourism or the arts. For the many businesses out there looking for the economic recovery, but with no expectation that pre-2008 margins are on their way back, knowing we’ll be at a 28% tax rate ahead of the Aussies from next April is a fillip timed for election year warm fuzzies.
To prove it, business lobbyists have switched from saying the government isn’t bold enough to now saying it’s not only bold, but even “radical”, which might be a tad over the top.
Bold has turned out to mean rational tax reform that takes the tax system back to something that looks much more like it did in 1989, when the company tax rate was last 28% and Roger Douglas and David Lange were in the course of tearing Labour apart. The top tax rate was last 33% as recently as 2001.
So these reforms are perhaps less bold moves than obvious ones. But even obvious moves need someone to decide to make them, and that has thankfully happened.
What these reforms don’t do, though, is fix the big problem that economist Gareth Morgan called “the big Kahuna” and which Douglas tried to fix in 1987 with the flat tax package and a thing called the “Guaranteed Minimum Family Income”.
That is the effort-sapping way the tax and benefit system immediately penalises beneficiaries who return to work, by double-taxing them.
At a certain point, the more you earn, the more you lose your benefit. It’s a double-whammy because you’re still paying tax on the income that’s killing your benefit. For you, for part of your income, you could be paying 65 cents in the dollar or more, yet be poor. That’s why it’s called a “poverty trap” – the sort of thing a relevant Labour Party might care about.
These high effective marginal tax rates paid by people a benefit and paid employment remains the great unsolved puzzle in tax reform.
It is the problem that some government, some time, should try to address if they wish to be regarded as making truly radical changes to the tax system.
Perhaps Key would be bold enough to give it a go in a second term National-led government. He has proven adept at handling a wealth redistribution argument with this Budget – the “envy” headlines of earlier this week are gone, replaced by a predominantly supportive media reception to the Budget.
The Tax Working Group approach is a model for bringing the public along with a complicated argument.
But it is a big ask. The government has so many political bases covered now, why would it bother to go into such treacherous territory which has already crippled one otherwise functional administration in the late 1980s?
It would take a desperate kind of adventurer to head there. Perhaps as desperate as an irrelevant Opposition looking for something more compelling for voters than a compromised anti-mining platform and a legacy as the party that last raised GST by 2.5 percentage points.
In reality, it will never happen, but what a powerful call to old Labour values it would be to cloak something like the Big Kahuna in a package to capture the imagination of the traditional low-to-middle-income Labour constituency by removing elements of the tax system that conspire to keep them poor.
Infometrics economist Gareth Kiernan says in Budget commentary this afternoon: “The government’s biggest missed opportunity …. has been to take a more substantive change to the benefit system and its interaction with the tax system.
“The monolithic Working for Families system and the independent earner tax credit (IETC) both deserve to be scrapped. These policies are guilty of unnecessarily complicating the tax system and skewing the incentives to work.”
As legacies of the Clark Labour government, it is undoubtedly a bridge too far for Labour under Phil Goff to scrap these programmes.
But the reality remains that Labour is grasping to look relevant in the wake of a Budget that, with or without a strong recovery, entrenches the government’s reputation as a competent economic manager, and capable of delivering what Bill English always said would be a “fair” tax package – a test that it seems to have passed.
For Labour, its period in Opposition is about finding new, defining opportunities. Opposition is all about looking harder and being willing to rethink its own actions.
Until that happens, John Key remains a shoo-in.
Friday, May 21st, 2010
Teflon Johnny might just have done it again.
Just when he was up to his neck in a Tuhoe cooking pot, the Prime Minister’s Budget has changed the political conversation, drawing words like “bold” and “radical” from, gasp, the business community, which keeps harping on about the whole “boldness” thing.
Even Business Roundtable executive director Roger Kerr, a man whose job description might include being disappointed by Budgets, gave it six out of 10. High praise, indeed.
Granted, the most excitable comment has come from accountants, who have spent many a boring three hours in the Budget lock-up with no tax policy to speak of and are now suddenly in the thick of it.
Which is not to say they are wrong. Tax is a scary, sometimes boring matter. But no one disagrees that it matters like hell when that assessment notice comes in from the IRD.
And in the constrained world of MMP politics, it must just about count as radical to manage a return to a corporate tax rate of 28%, which was last seen at the end of the First Age of Rogernomia in 1989, and the top tax rate only went above 33% in 2001.
What makes the Budget particularly strong is the extraordinary state of the Crown accounts. If net Crown debt is to peak at less than 30% of GDP after the most wrenching debt crisis ever to hit the developed world, then we’re looking in reasonable shape.
If it weren’t for the fact that the Budget economic forecasts still have current account deficits at around 7% of GDP for the foreseeable future, there would be an argument that English could borrow a bit more and get the place really going.
But with total private and public foreign debt standing at closer to 140% of GDP, that luxury is not available.
Instead, we hang onto the recovery and hope like hell that Spain, and Portugal, and Italy, and the US, Japan and all the other big debtor nations can keep it together in the meantime.
Monday, May 17th, 2010
Remember where you heard it first. (Which I admit may not have been here). The recovery is on the way.
Economic, that is. “Texas T,” if you’re old enough to get that Beverly Hillbillies reference, and to realise that Energy and Resources Minister Gerry Brownlee understands you only get rich fast once, but why not now with the minerals that New Zealand clearly possesses? Let the hard work follow.
Every other country is doing the same thing to the extent they can and, climate change be damned, why should New Zealand be holier than thou?
Greece’s financial crisis be damned, too. Europe is the old world and we in New Zealand got locked out of that world 30-plus years ago thanks to EU protectionism.
New Zealand makes food, and the rich world that we’re not part of is committed to protecting its farmers. We are locked out.
We shouldn’t target European markets for high-grade dairy products – we already know they won’t take our camembert.
So let’s value what’s high-value to people who don’t have much money – yet - the world we’re close to: Asia, South America, and southern Africa. Throw in the obsessively cheese-eating Arab world for good measure and pray for peace and prosperity in Iraq, Iran, and Afghanistan.
Hundreds of millions of increasingly wealthy Arabs, Sri Lankans, Vietnamese, Chinese, Nigerians and others are partial to a spot of nice kiwi cheese – and the rest of the excellent food we make – with not an import barrier in sight. As they get richer, which they will, we will make more of it. So who’s complaining?
This is the new New Zealand opportunity.
Born of the global financial crisis and the unexpectedly swift fall of the motherland UK, Europe, Japan and the US as the arbiters of global direction, in favour of the “global south,” New Zealand qualifies.
That’s why Trade Minister Tim Groser gets invitations to Beijing that the Aussies would die for.
Meanwhile, our banks are sound. Our most important markets are, if anything, over-heated. Both Australia and China have kept New Zealand afloat during the GFC and both are showing signs of slowing, albeit for different reasons.
Australia has put the brakes on with its super-tax on minerals, which might just be one way of discouraging China from investing in Australia, while China just needs to slow down, and knows it.
These are not so much long-term negatives as pauses in the long-term growth trend, to which New Zealand is close by.
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