Opinion: Bernard Hickey details 5 solutions to turn around NZ Inc's slide into penury through foreign debt and asset sales. Your view

Bernard,

You missed 2 bits:

- A GMI thus eliminating social welfare and super in one hit (massive savings on admin, fraud, creativity). This will be funded by comprehensive wealth tax.

- Introducing public money for public spending (adding on credit restriction tools to manage money supply...as Turkey has been doing for a while). Hopefully this will bring the kiwi down as well.

Without these 2 policies nothing is going to change.

So Bernard... with open capital markets how do you proposed to ever make point 4 work??  perhaps start with some Economics 101??

Wrong Bernard...cutting the value of the Kiwi$ would be a suger fix and no more than that.

The economy is dependent on imported fuels, vehicles, parts and we have billions to pay each year in finance on debts. A lower Kiwi would push up all of those. The impact would be punnishing for the fiscal account and for households. As well the banks would have to raise rates more than they should.

The correct goal is a stable Kiwi$ against our trading partners.

Are you NZpeople megalomaniac's ? Where do the Billions come from ?

…better rail, better power, better education, more staff training and a much more aggressive approach obtaining the scale and export-oriented approach to lift output per hour.

 ..and again I shake my head Bernard one of the most important factor – forgotten. Where do those demands come from - costing the taxpayer billions ? Better rail, better power,  – imported from foreign countries ? When do you people understand that such infrastructure needs have to be planned manufactured and maintained by NZcompanies – by the NZworkforce ?

After contributing and explaining for months why such investments need to be done here in NZ listing many important advantages – the old saga continuous importing most everything – what a bloody joke - HA !

Are you NZpeople megalomaniac's ? Where do the billions come from ? Have you heard of sustainable growth ?

What to you think  the cleaning up caused be every increasing demand of the world will cost the next generation ? Do you every thought the world could be changed for ever ? People wake up - stop your demands and start living within the means !

News just in: http://www.stuff.co.nz/business/industries/4845625/Jobs-lost-in-Foodstuffs-supermarket-revamp

1. Agree  2. Agree  3. Risky   4. Might interfere with 3?  5. Yes, but will actually increase debt

1 - agreed. (but you have to realise that this will take a few workers out)

2 - Land - no. GCT - yes. Land needs to have the option of being nurtured/retired/spelled.

3. Agreed - whose dollar is it anyway?

4. Absolutely - fiat leverage and usury can't be underwritten any longer, anyway.

5 Yes and no. Better everything now, but not for productivity per person/ hour, that's a nonsense. Better everything because soon there won't be a chance to do so.

And - don't confuse 'more' with 'better'.

Agree with 2 & 5. Agree with cutting WFF in 1 if there is a GMI as mentioned by raf. However on student loans and free childcare...

I reckon students shouldn't have to take a loan in the first place (without having to work nights and week-ends while studying). It's a shame that NZ universities seem to be run as businesses. That said, there should be some kind of differenciation between degrees that actually lead to employment, preferably productive and high-paying employment that young people should be encouraged to study for, and other degrees.

Free early childcare... You must mean free from 3 years old, I take it? What this would achieve is more parents, usually women, staying at home for longer instead of being able to pursue their career, hence seeing their skills having become obsolete by the time they are able to go back to work. Reason: looking at the stats on NZ wages as posted on another thread http://www.stats.govt.nz/Census/2006CensusHomePage/QuickStats/AboutAPlace/SnapShot.aspx?type=region&tab=Income&id=9999999 vs the high cost of childcare, many people would end up having to pay to go to work and therefore would likely choose not to work. But maybe that's what you want, women being forced out of work and having to stay at home to cook and look after the kids? You can't tell people to be more productive and save more while taking away the means (having a job) to do that. And please don't say people should only have kids if they can afford them; if people did that in this country, NZ would soon be wiped off the map.

Ooooooh Bernard, you're feeding the chooks again. It's a disservice to the plebian populace of new zealand, or, a lazy effort at serious journalism, from an economics journalist with many years of seasoned experience. You can do much better than that. Don't you read the comments in Interest.co.nz? Over the past 3 months there have been a number of discussions of how a CGT is "flawed" with a serious weakness, and the potential to double reward PI's (as SimonP has noticed). Didnt you read any of them? Did you think any of them through?

Yet you recommend
2. Introduction of land and capital gains taxes (What? because the IMF and TWG said so)

Australia already has all of the following 3
(a) Federal CGT payable on sale of property
(b) State Land Tax - payable annually
(c) State Stamp Duty - payable on purchase of a property

And they aren't working.

A simple phone call to : Enzo Raimondo, CEO of the Real Estate Institute of Victoria, or any prominent Real Estate Agency in Melbourne would have enabled you to ascertain which ones do and which ones dont achieve what you are recommending.

Victoria has 1500 new migrants arriving into Melbourne every week. Thats 75,000 new arrivals every year. Victoria has the same size population as NZ. The place is bursting at the seams. Are they coming from Christchurch? Is there a mass exodus from New Zealand going on? I challenge you to do a bit of homework, and report back. The chooks are waiting.

CGT does not stop housing bubbles.

This has been proven in UK/Australia and other countries.

Why suggest it as a reason to reign in house prices?

We are talking a comprehensive wealth tax. 

Also you should note that taxing capital (assets) and not creativity is likely to get us where we want to go. we are moving towards a low jobs world.....taxing labour is an industrial age solution. the technological era will mean we need to move to the resource base (where Henry George would have liked us all along).

You can't tax robots......

Bernard, as much as I enjoyed reading your articles, and as refreshing as have been your challenges of both national and international ways of economic thinking that so many of us have been stuck in during the last few years, one thing that I'd also like to see is what we might be able to do as individuals.

The problem with waiting for government to do anything is that they often don't at all, or don't do what we expect -- either you have to vote in someone who (promises they) will, or you have to try to get it done yourself.

Apart from voting in November for a government who will take these messages to heart, what do you think that we can do? Apart from the obvious, like paying off our mortages and reducing our household debt (credit cards, HP, etc.) what do you think we should do specifically (as individual readers of this site) to help NZ go forward in an economically sustainable way? What are your views on sustainable and ethical investing, for example? What might an ideal NZ economy look like (if such a thing could happen)? How do we best make a difference for the greater good in NZ if we have some spare cash lying around? What would really help NZ if enough of us did it on an individual level?

I think that such an article might make the perfect complement to your articles which have identified the problems (i.e. various articles on this site), and have discussed a broad set of government-level solutions (i.e. this article). It would also fit in well with the mantra of this website: "Helping you make financial decisions".

Finally, keep up the great work, Bernard (and other writers/contributers/article-commenters). This site is a really great venue for sharing ideas and learning new things, and there's a really good community here.

JetLiner

nzgold.......some interesting comments. perhaps it's time we put on a monetary reform conference in nz...and look at the the various options for restructuring our monetary affairs before it's foisted upon us? sound money, however we do it. 

Wise thoughts Jetliner. As returning Kiwis with some extra cash (earned abroad) we’re interested in investing in sustainable NZ, concerned about NZs economic woes we will be looking at opportunities to contribute positively. So an article outlining these ideas would be very helpful.  At this stage in our lives we are lot necessarily looking for best RoI, international diversification but ways we can support NZ for NZers (future generations) and certainly not an internationally owned/controlled banking system.

I have my doubts about 1. Bernard.  Abolishing (assuming you meant that) Working for Families, interest free student loans and 'free' early childcare - well while some may say WFF is an employers subsidy and some might abuse WFF (and they should be targeted) many families depend on that to survive.  Children are always the first to suffer and they would also be with the abolition of free early child care.  There Mothers could not work. Don't we have enough children living in poverty in NZ without adding to that number?  Interest free student loans also targets the young.  You (I presume) and I, Bernard got free tertiary studies and it is a bit on the nose to demand the students pay even more.   Perhaps an alternative is that all students who leave the Country can only do so if they repay their loan  The Banks can wear that or their parents.  Or further or get an intercountry agreement to take it from their pay packets. Reverse last years tax cuts for the rich is also a good idea.  You would think NZ has a high tax take.  Just look at Australia's with its myriad of taxes.

I haven't given a lot of thought to the others.

News Flash - How to Avoid the CGT - act now.

With the pending announcement of a Capital Gains Tax expect an upsurge of non-principal-residence property "sales" as property investors move to shift their investments out of their own names into their spouses names and back again. These sales will occur off the normal radar-screens of the real-estate industry. PIs will be flocking to their nearest conveyancing office to undertake the sales transaction and establish an official record-date of the sale and purchase of their property-holdings at current prices in the current year. Tax legislation is rarely retrospective. If introduced it will be as from a specific date. Probably 1 July or 1 December, after the budget and after the enabling legislation. If they are smart they will transfer the properties at fully inflated values. Any future sale, after the record-date,  at less than the transferred price will result in a Capital Loss and no CGT to pay for many years, with the possibility of tax refunds for the speedy.

Prediction. In coming months the real-state industry and QV will report an upsurge in property sales and claim increased confidence in the property industry.

Bernard, when you say the IMF you are basically saying America and the IMF is bankrupt so why listen to them. The Federal Reserve is technically insolvent and most of the European countries who followed their example are heading in the same direction.

All we need to do to get back on track is to print our own money so our dollar devalues creating increased wealth from exports and making paying back existing loans cheaper in relative terms.

It's not rocket science, the global economy trades in American dollars (for the moment), but when the US print trillions to maintain their insolvency what is the value of the trade?

Bankers saw 20 years ago that jobs and there-fore wealth would be transfered from the US and Europe to Asian countries and they have planed out well the debt economy which has caused so much grief. Now it is time to get ahead of the bankers and take our country back by devaluing our dollar and creating real wealth based on the valuable commodities we produce.

" loan to value ratio limits." Bingo!

I would add putting a stop to subsidising borrowing, i.e. subsidising banks and wealth shifting (up).
Oh, and a sound banking system, real honest inflation targeting monetary policy, strong anti cartel... pardon? Too much? Aw?
 

I don't agree with eliminating 'free' early childcare, firstly it contradicts investing in education. It is also internationally recognised as part of a good early start for our children, its also an oppotunity to identify probelm children early, its not all about money Bernard.

I'd add a 6th which is to repeal the tax cuts to the wealthy the the Nat govt promised to get in power.

Smihie62, correct me if I am wrong but I was under the impression that the tax cuts took place accross the board, as opposed to specifically "to the wealthy". By wealthy, I assume you mean those on the highest tax-band, ie those earning 70K+. Somehow I doubt that someone on 70K, or even 90K, feels that wealthy, especially if they are the sole earner in the family and have a partner + kids to support.

Fully agree with your first para.

Mostly I suspect you need to look at the de-regulation era, ie Reagan and Greenspan....for the in-eqaulity to really take off....

50s to 70s, have a look at the growth in the consumer economy....

Im not convinced by a long way that tax cuts help ppl get better off provided the tax rates are not punative.....which at 30~35% odd are not, 70 or 90% yes sure.

Warren buffet has said in % terms he pays less tax than his secretary....that isnt just.

regards

Hi Bernard,

I usually listen to your reports in the morning and decided to add to the current discussions.

1, Cut the Middle Class Welfare -Any changes to WFF will need to be done over a long period of time as many are very reliant upon the WFF benefit.

2. Introduce land and capital gains taxes - This taxes everyone and may not be affordable to a number of retired folk or those on modest income.

3. Bring the NZ dollar down - Good for exports but bad for imports. In light of the US dollar losing its status as the World currency it would be better that the NZ dollar remains stable instead of printing cash to devalue it (seems a dodgey practice).

4. Restrict bank funding and lending, and companies borrowing offshore - Ok see below

5. Invest heavily in infrastructure - Invest wisely in infrastructure and ensure the benefits are immediate. This is best described by examples. The Northern holiday highway needs to be deferred further into the future or canned as the cost/benefits seem modest. The SH20 to SH1 extension should not have opened without 3 lanes to Takanini as that has created a daily grid lock from 4pm onwards for Traffic heading South. Just need to be smarter about these big infrasture projects to ensure they deliver as promised and not the opposite.

There really needs to be a whole range of cuts, increases and long term plannning

1. Abandon tax cuts

2. Cut back on spending

3. Moderate increase of the top tax rates

4. Moderate increase of Corporate tax rates

5. Issue local bonds - The NZ Treasury should issue local bonds to raise finance, STOP borrowing overseas. The Manukau and Auckland Councils issued $1B of bonds to consolodate debt prior to the SuperCity, these bonds were taken up very quickly.

6. Review policies on Mining and Crude Oil - The reason why I am against mining or crude oil extraction is because the Netfinancial benefits seem very poor to NZ. Apart from the tax and jobs, the government gets a poor return of only 1% of the mined resources. This is basically giving away the resource. If it could be insisted that the returns to NZ were far greater then many would be supportive of these industries.

7. Invest in NZ - It is concerning that Solid Energy has been identified as one of the SOEs for potential sale as this is one of the Crown Jewels of NZ. The Solid Energy Model could potentially be replicated into Mining and Crude Oil SOEs. These types of SOEs would be 100% benefit to NZ and should be thoroughly investigated for future revenues and employment.

Cheers

T Greening

FYI here's comment via email from Susan St John, the Associate Professor of Economics at the Business School at the University of Auckland. She is also a spokeswoman for the Child Poverty Action Group.

"Bernard's analysis displays no understanding of family economics at all, and incites misinformed comments such as this found on the net: “I totally support your suggestions, Bernard. WFF was the stupidest idea the government ever had.”

"Unfortunately, the antipathy to Working for families  is now widespread in the media and Hickey helps smooth the path for the government to slash this programme.

"But Working for Families tax credits are simply a way of adjusting tax to take account of family size and to share the costs of raising the next generation more equitably. Other countries take a similar approach, and may use a combination of cash benefits, rebates, and tax exemptions.   

"In Australia for example, for a family with one child under 13,  Family Tax Benefit A is worth A$4,906 per year and abates only after a family income of A$45,114 (equivalent to NZ$60,000). Abatement at 20 cents in the dollar ceases once the Family Tax benefit has been reduced to  A$2,062, only when  family income reaches A$94,316 a year, does the payment abate at 30%.   If the child is a new baby there is a further A$5,294 baby bonus.

"For single earner families not getting a baby bonus or the generous Paid Parental Leave there is the additional tax credit of Family Tax Benefit B, worth just over A$3,909 for a child under 5 years, or A$2,832 for a child aged 5-13 years. Family Tax Benefit Part B is paid where the primary earner has an income of A$150,000 per year or less, and abates against the secondary earner’s income over A$4,745 at 20%.  Is this not middle class welfare on a much grander scale?

"All up, one child families, including those on benefits, receive maximum  assistance from tax credits of either A$10,200 if there is a baby bonus paid, or A$8,815 if the child is aged 1-4 and $7738 for a child aged 5-13.

"In New Zealand, if this one child family is on a benefit, the most they can get from Working for Families, whether the child is a newborn or not, is NZ$4,472. A New Zealand family that is defined as “working” qualifies for the In Work Tax Credit, but they can only get the full entitlement of NZ$7,592 if their total income is under NZ$36,868. Contrast these with the Australian figures when our dollar is only worth about 75% of the Australian dollar.

"So Bernard, if you try to “stop the slide into poverty” by doing away with the meagre Working for Families tax credits, how then will you stop the exodus of our young struggling families to Australia? "

Ask Susan St John if she's heard of 'ultimate scarcity'.

Ask her if she understands that population needs to be limited, or it will be limited for us.

Ask her if she understands that the 'fiscal understanding' she and Bernard are basing this discussion upon, is indeed false.

The so-called 'wealth' is actually only being had by not accounting Natural Capital and ultimate scarcity properly.

Even with that skew, the world they both knew is irretrieveably gone.

It's like watching a squabble over who bagses the deck-chair, even as it slides past.

"...Families tax credits are simply a way of adjusting tax to take account of family size..." How about we get the cart before the horse, and adjust family size to match family income, not tax. If you can't afford to have children, don't. Isn't that the freedom of choice that the contraceptive pill gave us from the 60's on?

As PDK says we're fighting over the scraps here. The goal surely is to simplify the system as much as possible and then start to realign it towards a sustainable path.

A GMI (lots of different options) does away with all the discussion about welfare. Welfare is so 20th century....actually it was also earlier (see Elizabethan Poor Law 1601, Act of Settlement 1652, Speenhamland 1795, Poor Law Amendment Act 1834 etc.....).

Welfare is a catastrophe for society. An equal provision of basic needs for all citizens (basic income) and nothing more is an equitable and sustainable platform for society.

And yes if you want to have children be sure you can look after them properly (A GMI could have provision for 2 children max but anymore and you're on your own).

These Socialist academics have a lot to answer for. They have no concept of reality and are breeding what are generally ignorant and often verging on the illiterate graduates.

I hope Ms St John was criticising her socialist mates in the last Labour Governments for their lack of response to reining in the housing bubble in the early / mid 2000s, because ultimately Labour's lack of action then led to the runaway house prices which led to the need for WFF

Its all because of that lack of action that we now face huge problems 

To be fair, cut backs other than for the higher income recipients of WFF may have lots of negatives, negatives which outweigh the benefits of cutting it.  But I still come back to the point that we should have never got ourselves into this situation    

No mention of pensions under cutting middle class welfare. Must still be taboo then.

Take a look around you: how many formally “employed” people are getting paid and yet are not producing much? How efficient and productive are we? How many (formally “employed”) people strive to accomplish more and better every day and how many people waste their time doing very little (incl. surfing the net, blogging on this and other sites, etc.)?

It’s all about PRODUCTIVITY. It’s all about working as the Germans do or lazying as the Greeks have been.

Fixing the problems can only be done through increasing productivity, creativity, innovation and not by introducing more taxes (suggestions to increase tax or introduce new taxes make me cringe) or re-distributing whatever little wealth is still left.

Get to work instead of blogging the whole day and every day and THEN incomes will improve, houses, holidays, goods, etc. will become affordable…