Bruce Wills finds an example where big export contributors are being milked to fund populist domestic policies. He doesn't recommend such policies for New Zealand

By Bruce Wills*

I have seen one future for New Zealand if we were to have a capital gains tax, resource rentals and a punitive emissions trading scheme.

That future lies in Argentina.

Argentina, like New Zealand, sits in what we call the pastoral sweet spot.  It benefits from a temperate climate, good soils and regular rain just like we do. 

On the less positive note, its economy is in serious, serious strife. 

You have populist government pushing policies of cheap domestic energy and food that exporters are paying for.

Literally.

There is good social security but there are also pot holes in the roads and genuine poverty I saw with my own two eyes. 

Speaking with Argentinian farmers, there’s a general sense the economy is heading towards a cliff; the peso falling 20 percent against the US dollar in January alone. 

Bearing in mind our inflation rate is less than two percent, Argentina’s is ‘unofficially’ 30 percent.  The ‘official rate’ has been a third of this number and this contradiction saw the Economist Magazine end its use of official statistics in 2012, with “Don’t lie to me, Argentina.”

To its credit, Argentina has moved back to ‘real’ inflation data in recent weeks, but there is still a suspicion the country is heading for another debt default. 

The Falklands were invaded 32-years ago to distract attention from serious economic woes and in recent days, a 50-peso note (NZ$7.27) was launched with a map of ‘Las Malvinas.’  Somehow, the Falklands and Argentina’s economic prospects seem joined at the hip.

Argentina is also a country where the government is in a cold war with farmers.

I am loathe to use the word hate, but perhaps that is the closest thing to what I picked up and helpful, it is not. 

Like New Zealand, the bulk of the Argentina’s physical exports come from the land being, I believe, around 65 percent versus our 72 percent. 

The country has the capacity to feed 300 million people the “but” being a lack of policy support because “with favourable policies the nation could increase its capacity by 60 percent by 2020.”

Contrast that with the aim here to double primary export values by the same year. The big difference between here and there, is that ‘their’ dairy industry is not meat as you may believe, given I spent a week on the Atkins Diet.  Its shooting star is in fact soy where 20 million plus hectares are planted compared to our 1.7 million hectares in dairy here.  In fact that’s a lot more acreage in a single crop than the land mass of the South Island.

Given our General Election is in September and will be fought around the issues of spending priorities and how they will be funded, I seriously recommend that our politicians, political writers, commentators and editors all look at Argentina. There is also a catalogue of tariffs on something like 600 lines all designed ‘to protect local industries.’ 

In order to pay for domestic policies to placate the masses, you end up with a dizzying array of taxes.  Argentine farmers have an unsustainable tax weight of close to 85 percent.

Argentina may not have a capital gains tax on property per se, but instead, it has a property tax.  This is levied on the seller at 1.5 percent of the sale price irrespective of whether you gain or lose.  Like most taxes of its ilk it simply becomes part of the sale price and so would a capital gains tax here. But wait there is more.  Property taxes, or rates, have been surging and saw a farming strike threat several years ago when 300-400 percent increases emerged.  Oh, if you rent, that is subject to a provincial ‘stamp duty’ while landlords pay a rate of 24.50 percent on rental income.

In Argentina there is a tax for almost every occasion.  There is a wealth tax and a financial transactions tax too.  Its GST is between 10.5 percent (food), 21 percent (services) to 27 percent for some vital utility leases like water. Last December, the government even raised a levy on foreign credit card purchases to 35 percent.  It puts a whole new spin on ‘don’t leave home till you’ve seen the country.’  

Despite calls to reduce or eliminate them, export taxes have become a financial drug to the Argentinian treasury. It means exports of major agricultural commodities, like soybeans, are subject to 35 percent taxation.

Given a rigorous Emissions Trading Scheme (ETS) on agriculture here would be like an export tax there, imagine what effect that would have on exports.  Punishing exporters for making the hard currency the domestic economy needs isn’t a great idea.

The practical impact is that these policies are not working for Argentina.

No one benefits when the big export contributors are being milked to fund populist domestic policies.

In fact everyone loses and as The Economist noted, “The lesson from the parable of Argentina is that good government matters.”

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Bruce Wills is Federated Farmers President