By Bernard Hickey
Prime Minister John Key has unveiled plans for part sales of the big electricity generating and coal mining state owned enterprises, as well as a tighter budget in an effort to reduce foreign borrowing.
Key unveiled the plan that sets the scene for a late 2011 election in his state of the nation address at the Waitakere Trusts stadium in Auckland. A full copy of the speech is republished below.
"The theme of this year’s Budget is going to be savings and investment," Key said.
"We recognise that New Zealand’s high level of foreign debt is our biggest vulnerability," he said, adding the government had asked the Savings Working Group to consider policy options to increase national savings.
Key said he had asked Treasury for advice on the viability of part sales of Mighty River Power, Meridian, Genesis and Solid Energy. It would also look at further selling down the government's stake in Air New Zealand.
"But the Government is already committed to playing its part. We have to increase our own savings and reduce public sector debt. That is why the Government is going to reduce growth in its spending, get back to surplus faster than previously indicated and look to better allocate its assets across competing uses."
He said any sales wouldn't happen before the election and there would be a variety of limits, including the government retaining 50% stakes, New Zealand investors being first in line in any share sale process and any proceeds would be used to invest in other public assets.
He announced plans in the 2011 budget to reduce the government's new spending allowance to NZ$800-900 million from NZ$1.1 billion. This would mean the government returns to a 'meaningful surplus' a year earlier than forecast.
"Simply put, we need to increase our national savings so we can control our destiny as a country," Key said late on Tuesday ahead of the speech.
Key says Goff irresponsible
Key said Labour leader Phil Goff's pledge in his state of the nation speech to make the first NZ$5000 tax-free (see more detail here) was fiscally irresponsible.
He said Labour was about NZ$1.1 billion short - if the top rate of tax was 38c at $120,000 - and it would have to be borrowed.
Key said New Zealand's credit rating would be downgraded and interest rates would rise.
"We live in New Zealand, not fantasy land," Key was quoted as saying.
"There is no magical fairy with a printing press at the end of the New Zealand garden. This is money that would have to be borrowed from overseas. It's money we can't afford to borrow, all for about $9 or $10 a week," he said.
New Zealand's foreign debt was around 85 per cent of GDP. The only countries with a similar profile were Ireland Portugal, Spain and Greece - "not happy company to be in".
Key said he would have some respect for Labour's policy if it had said how it would be funded.
Here is the full press release and Questions and Answers crib sheet from Key's office on the speech.
Reaction:
Property Council CEO Connal Townsend welcomed Key's speech and its emphasis on debt reduction, although he took a swipe at last year's moves to deny depreciation as a taxable expense for buildings.
"Tax cuts, in order to avoid extra government borrowing, were largely paid for by the commercial property sector and ultimately owners and investors," Townsend said.
“Removing the ability to claim depreciation for a commercial building structure created a disincentive for investing in commercial property, which was contrary to the government’s goal of encouraging savings and investment," he said.
“Industrial, retail and office property is the infrastructure of business – helping cities to grow and become more productive but also helping kiwis to save for their retirement through listed and unlisted property vehicles and Kiwisaver."
A full copy of Key's speech is republished below:
Our economic challenge
Ladies and Gentlemen.
This year is about building a brighter future for New Zealanders and their families.
That is only possible if we lift the country’s economic performance, and by doing so deliver the jobs, higher incomes and better living standards New Zealanders aspire to and deserve.
That means making responsible decisions now, as the economy picks up, to increase national savings and reduce the country’s debt.
In less than two weeks, on the first day of Parliament, I will deliver a Statement which sets out our full programme of action for the year, across all the different areas of government.
But today I want to concentrate solely on the economy, because our economic performance is the most important challenge facing New Zealand.
The good news on the economy is that 2011 is expected to be a better year than 2010.
Treasury is predicting growth in excess of 3 per cent this year, together with higher wages and falling unemployment.
As in 2010, there will no doubt be bumps in the road.
But regardless of what unfolds, it is important to look through the quarter-to-quarter economic figures and focus on the longer-term challenge.
That challenge is to build a lasting recovery based on savings, exports and productive investment.
New Zealand has been through a recession and a global financial crisis. We have a chance, now the economy is gathering steam again, to build a solid platform for future growth.
If we get this right the possibilities are exciting.
Our trade is rapidly shifting towards Asia, which is growing much faster than our traditional markets in Europe and the United States.
New Zealand is a food-producing country and world demand for food is rising. Global prices for dairy, forestry, meat and other commodities are high.
We have a genuine competitive advantage in agriculture and other primary sectors. We have world-class firms engaged in high-tech manufacturing, software, film and other industries.
These are great opportunities for New Zealand.
But as a country we have to reach out and grasp those opportunities or we risk missing the boat.
The way for New Zealand to get ahead is to sell more to the rest of the world.
That means making some changes.
Growth over the last decade was built on all the wrong things – debt, consumption, and government spending.
People borrowed heavily to buy houses and farms, property prices soared and New Zealanders felt wealthier as a result. They spent a lot on consumer goods, which led to a bubble of economic activity.
The Labour Government thought this bubble, and the tax revenue it generated, would go on forever and spent up large on permanent new spending programmes. The Government’s spending increased by more than 50 per cent in just six years.
High government and private sector consumption generated inflationary pressures, pushing up interest rates and discouraging productive investment.
High interest rates in turn led to an over-valued exchange rate which smothered the internationally-competitive sectors of the economy, like agriculture, horticulture and manufacturing.
Our exporters found it hard to sell their products at competitive prices overseas because of the high value of the dollar.
The internationally-competitive sectors of the economy actually went into recession in 2004, and experienced a 10 per cent drop in output over the next five years.
In contrast, the domestically-focused side of the economy grew strongly. Since 2004, almost 60 per cent of new jobs have been in heavily government-dominated sectors.
As a country we imported far more than we exported, leaving a gaping balance of payments deficit that persisted for year after year.
All this could never be a solid basis for growth.
Subsequent events proved that very clearly.
By the time the National-led Government came into office at the end of 2008 the economy was deep in recession, and inflation was the highest it had been in 18 years.
The Government’s books had been left in a mess, with Treasury projecting no end to budget deficits and government debt spiralling out of control.
As an incoming government, we moved quickly to steady the ship, help the economy through the recession and set a credible path back to surplus.
Even so, when we tally up everything the Government is spending this year, we still need to borrow $300 million a week on average to pay the bills.
In the worst of the recession, running a budget deficit was the right thing to do, as it gave much-needed support to the economy.
Now, as the economy recovers, borrowing $300 million a week is unaffordable and is holding the economy back.
It is crowding out our internationally-competitive sectors of the economy, keeping the exchange rate high, and tying up resources that could be better used elsewhere in the economy.
And this borrowing will, of course, have to be repaid in future years, with interest.
Annual interest payments on our debt will, in four years time, cost more than spending on the Police, defence and early childhood education combined.
Rising government debt adds to New Zealand’s total indebtedness to the rest of the world.
Through decades of under-saving, over-spending and over-borrowing, the public and private sectors have together built up a net foreign debt equivalent to 85 per cent of GDP.
That makes us heavily reliant on overseas lenders who can at any time decide that we are just too much of a risk. And if we can’t raise money overseas, or can only do so at a high price, we face the risk of a protracted recession, with a significant loss of jobs and a fall in the value of everyone’s homes, businesses and farms.
To put it in context, the only other developed countries with a foreign debt the size of ours are Greece, Portugal, Spain and Ireland.
That is very uneasy company indeed. And it is precisely the difficulties those countries are in that has led to Standard and Poor’s putting New Zealand on negative outlook.
So as the economy picks up, it is crucially important that our growth is not based, as it was in the 2000s, on debt, consumption and government spending but instead is built on the solid foundation of savings, exports and productive investment.
The National-led Government was elected in late 2008 to build that stronger growth.
We have made considerable progress already with our six-point plan for a stronger economy.
As part of that plan we undertook the biggest reforms of the tax system in 25 years to increase the incentives to work hard, save and invest; and to remove distortions and clamp down on loopholes. Importantly, we designed these tax changes so that they won’t result in extra government borrowing across the forecast period.
We hauled back new budget spending allowances and reduced the size of the bureaucracy.
We invested in much-needed infrastructure, to unblock the arteries of the economy.
We have progressed an ambitious free trade agenda.
And we introduced a number of regulatory changes to make it easier to do business.
But structural change in the economy does not happen overnight. It is a bit like turning a super-tanker around.
New Zealand’s economic imbalances have built up over several decades, so it will take more than a year or two to fix them.
It will take a number of years and considerable effort.
In our first Budget, in 2009, the Government’s focus was on getting through the recession in as good a shape as possible.
In last year’s Budget, we concentrated on reforming the tax system.
This year the theme of the Budget will be savings and investment.
The Government agrees with the Savings Working Group, in its interim report, that New Zealand as a whole needs to save more, spend less and reduce our reliance on foreign debt.
Over the last year or so, New Zealand households, businesses and farms have begun to save more, spend less and borrow less as a proportion of their incomes.
This is an encouraging change of behaviour but needs to be cemented in for the long term. And government needs to stop pushing the other way.
The Savings Working Group is due to present its report to the Government in a few weeks. We will consider this very carefully, including ideas around tax, KiwiSaver, and investment products.
The Government has already made tax changes that are pro-savings. We remain conscious, however, that effective tax rates on some forms of savings remain very high.
The Government is also interested in ideas that increase participation in KiwiSaver and raise national savings, but which don’t result in an ongoing and unaffordable fiscal cost, which again would have to be borrowed.
And in terms of investment opportunities, the Government is interested in the Working Group’s thoughts on how to expand the range of investment opportunities available to New Zealand savers.
It would be better for both investors and the economy as a whole if people had the confidence to save more and invest in a wider range of assets, not just in property.
These are all areas where the Government may be able to influence the level or allocation of private sector savings.
But a point which has been made to us very clearly, by the Savings Working Group and others, is that the government is itself a crucial part of the national savings equation.
The government simply has to get its finances in order if New Zealand is to achieve a long-term improvement in its economic prospects.
Therefore I am announcing today that the Government intends to borrow less in the future than is currently forecast.
That is going to involve action on two fronts – on the operating side and on the capital side of the Government’s spending.
First, in terms of operating spending, the Government has decided to run a tighter fiscal policy than has previously been indicated.
When we are borrowing $300 million a week, have an overvalued exchange rate, and face the prospect of a credit rating downgrade, the Government believes it should be spending less and therefore borrowing less.
I have therefore challenged my Ministers to balance the books more quickly.
Government spending will continue to increase each year in dollar terms, but at a slower pace than the rest of the economy.
As the first step in reducing spending growth, we will run a tighter Budget this year than was indicated in the Budget Policy Statement in December.
Currently we have a new spending allowance of $1.1 billion each year, compared to Labour’s average of $2.8 billion a year over its last five budgets.
Our plan is to reduce that new spending allowance in Budget 2011 even further, to around $800 to $900 million.
Nonetheless, this year’s Budget will continue to prioritise new spending to health and education in particular, and to initiatives that promote economic growth.
At the moment, Treasury is projecting the budget to return to a meaningful surplus in 2015/16. With a tighter Budget this year, and assuming revenue stays on track, the budget will in fact return to a meaningful surplus a year earlier, in 2014/15.
In addition, until we get back into surplus, we are going to allocate any upward revenue surprises to further reducing the deficit.
Throughout this year, we are also going to consider longer-term sources of savings.
In particular, the Government is determined to reduce the costs of running its own business. That process has started, but the public sector is still a long way from being a lean and efficient organisation.
Crucially, this year there will be no room at all for extravagant election promises.
We are going to campaign on being responsible managers of the economy, who make the right decisions to build a platform for future growth.
Any party that wants to ramp up spending is being economically irresponsible.
The only way to spend more money is to borrow it or to raise taxes. Borrowing more would lift our debt to dangerous levels, while raising taxes would snuff out the recovery and send even more Kiwis overseas.
In terms of capital spending, the Government is committed to building assets that will help create a stronger economy and deliver better public services.
In December, the Government released its first Investment Statement which shows what we own, how much it is worth, and how much we expect to spend on buying new assets in the future.
The Investment Statement shows that the government, on behalf of taxpayers, owns $220 billion of assets across a whole range of social, financial and commercial investments – everything from hospitals, roads, prisons, schools and Police stations to the Super Fund, electricity companies and coal mining operations.
We also expect to acquire $33 billion of net new assets over the next five years, including new schools, operating theatres, ultra-fast broadband and major investments in our state highways and other transport infrastructure. That is a considerable spend by any reckoning.
At the margin there are two ways we can acquire new assets – either we can borrow more or we can change the mix of assets we own.
As I have said, the government can’t keep building up debt forever.
As a country we have to fund more of our own future.
So we need to look at where we can change the mix of assets we own – identifying where new assets are most needed and where we have more money invested than we absolutely need to.
The greatest scope to change the mix of assets lies with the government’s portfolio of commercial assets.
In particular, the sort of mixed-ownership model under which Air New Zealand operates – where the government owns most of the company but there is a minority of outside equity – gives the best of both worlds.
Under this model, the government has a controlling stake in what is a crucial piece of transport infrastructure and guarantees that it will be majority New Zealand owned. But by not owning 100 percent of the airline, the government also has capital free to invest in other assets.
This model could be extended to more of the government’s commercial assets.
As well as freeing up capital, there are three other potential benefits of a mixed ownership model.
The first is that it broadens the pool of investments for New Zealand savers, either directly themselves, or through investment funds such as KiwiSaver.
New, quality listings on the stock exchange would give “mum and dad” investors the option of putting their savings into large and proven companies, rather than relying, as is so often the case, on property investments.
The second is that the company reaps the benefits of sharper commercial disciplines, more transparency and greater external oversight.
Under the mixed ownership model Air New Zealand has been a creative and innovative company and a model corporate citizen. It has also offered some very competitive prices for air travel.
I am convinced that Air New Zealand would not be run as well, nor provide as good a service to customers, if it was owned 100 percent by the government.
And the third potential benefit is the opportunity for the companies involved to obtain more capital to grow further, without depending entirely on a cash-strapped government to support them.
For all these reasons, the Government has asked Treasury for advice on the merits and viability of extending the mixed ownership model to four other state-owned companies – Mighty River Power, Meridian, Genesis and Solid Energy.
In each case, the government would retain majority ownership and control, and the freed-up capital would be used to purchase other public assets, thereby reducing the government’s need to borrow.
The Government has also asked Treasury for advice on the merits and viability of reducing the government’s shareholding in Air New Zealand, again while retaining a majority stake.
Only the companies I have just mentioned will be considered for a mixed ownership model. But the Government will continue to look for commercial arrangements in other areas where private involvement can help drive performance, in the way we have been doing with public-private partnerships, for example.
I can see a strong appetite from New Zealand investors for participation in a mixed ownership model. Between KiwiSaver, other managed funds, iwi, mum and dad investors and the government’s own investment arms – including the Super Fund – there is a very substantial capacity to invest in quality New Zealand assets.
We would envisage these groups being at the front of the queue in any offering, and taking the majority of any stake that was offered.
In particular, I think it would be great if Kiwi mums and dads had more of a stake in the New Zealand economy by owning shares in good Kiwi companies. That, in my view, would be progress towards building a better savings and investment culture in New Zealand.
Ownership by New Zealand investors would of course be on top of the government’s majority stake, which is held on behalf of all New Zealanders. That majority stake would always ensure New Zealand control for the benefit of New Zealanders.
As far as possible, without compromising commercial sensitivities, the Government will publicly release the advice we receive from Treasury.
We have always been clear that if there was to be any change to our policy on state-owned assets in any way, we would seek the support of New Zealanders at an election, and that is exactly what we will do.
Our final policy will be decided prior to this year’s election, and we will seek a mandate from the electorate before proceeding with any change.
The mixed-ownership model presents the possibility of real benefits for New Zealanders.
But let me be clear – we will only proceed with a mixed ownership model if it meets the following tests:
the Government would have to maintain a majority controlling stake by owning more than 50 per cent of the company;
New Zealand investors would have to be at the front of the queue for shareholdings, and we would have to be confident of widespread and substantial New Zealand share ownership;
the companies involved would have to present good opportunities for investors;
the capital freed up would have to be used on behalf of taxpayers to fund new public assets and thereby reduce the pressure on the Government to borrow; and
the Government would have to be satisfied that industry-specific regulations adequately protected New Zealand consumers.
In particular, I want to stress that the Government is interested in what works, not in following any particular ideology.
Governments of all stripes, all around the world, regularly consider the mix of assets they own and whether they are deployed in the right places. That is what we are doing as well.
I want to finish by emphasising the importance of getting the New Zealand economy back on a solid and durable growth path.
We got off that path in the mid-2000s, and doing so has proven very harmful.
Getting back on the growth path again means playing to our true strengths – allowing our export industries to start expanding again, and not tying up resources in less-efficient, domestically-focused government sectors.
Increasing national savings is key to supporting this shift.
That is why the theme of this year’s Budget is going to be savings and investment.
We recognise that New Zealand’s high level of foreign debt is our biggest vulnerability.
We have asked the Savings Working Group to consider policy options to increase national savings.
But the Government is already committed to playing its part. We have to increase our own savings and reduce public sector debt.
That is why the Government is going to reduce growth in its spending, get back to surplus faster than previously indicated and look to better allocate its assets across competing uses.
As I said at the outset of this speech, New Zealand has some great opportunities to get ahead again and have a more prosperous future. But to do so we have to give our internationally-competitive sectors the platform to succeed.
This Government is prepared to do that. We will take the steps required to build stronger growth, and build that brighter future for New Zealanders.
New Zealanders deserve nothing less.
128 Comments
If John Key is so worried about the government increasing foreign borrowing, why does he appear so relaxed about his government borrowing NZ$1.15 billion (mostly from offshore) in the last two weeks alone?
And back on December 200 John Key was much more relaxed on government debt (that he sanctioned)
"The truth of it is government debt at the moment is sitting at around about 18% of GDP and is likely to top out at, in all the numbers we have, at 28.5% of GDP. Now relatively speaking how does that put us? The answer is in very good shape to a lot of other countries. So the UK on its way to 100% of GDP, the US on its way to 100% of GDP, Japan at 200% of GDP," he said.
"The ratings agencies tell us ‘look if your debt is under 30%, you’re of no concern to them, if it’s between 30-60% they think it might hold back growth a little bit, but again of no major concern, anywhere near 100% then you really get their attention."
There was no question about government not being able to sustain another earthquake in New Zealand if it were to happen tommorrow.
"The answer is yes we can."
cheers
Bernard
PM - it is up to you and act first, before unpleasant human earthquakes occur.
PM – savings also means your ministers performing on a high standard, but they don’t.
Two examples: Minister Brownlee is underperforming because of sluggish behaviour in “Pike River” safety issues, costing taxpayer millions and Minister Joyce imports infrastructure needs in the Billions, in stead of allocating orders to NZcompanies and NZworkforce – costing the economy and tax payer billions again. PM – it is up to you to save money, by acting now - reforming our economy.
…and have you noticed PM and Tourist Minister - NZfarming and NZtourism the biggest earners are increasingly biting each others arses.
..and have you noticed PM foreigners buy our houses and Kiwis can’t anymore.
..and smiling time is up - to wait and see or see and wait – PM we need productive actions.
Bloggers, just try and start your comment with the name one of our parliamentarians and feel free, politically independent and not guilty or too much attached to the Queen or impressed by other big authorities.
Why managers of sports clubs underperforming are made redundant and parliamentarians and bankers are roaming free ? Why don’t we make them accountable for their (in)actions ?
Why do we not ask the question, who (names please) fabricated that stupid deal ? Going into the future some of the parliamentarians have to be accountable for this. We all should learn members of parties make the decisions and we have to name and know them.
Our vote is important.
While applauding any attempt by the government to get the nation to save and put money into kiwisaver and super schemes rather than borrow overseas money for property investing I believe there still has to be a balance between the nation saving and spending. A large majority of new zealanders are employed by small companies that are currently struggling to survive in the recession and if things do not improve many businesses are going to close down and this will only put more strain on the crowns coffers in the way of paying benefits to those who are laid off from working for those companies. As a nation our economy is already under severe strain and does not need more stress put on it. I am not promoting silly spending just sensible spending by people who are doing some saving at the same time. Living within one's means and not spending more than we earnt like many did in the mid 2000's. If NZ is going to survive as a viable nation that can stand on its own feet then some spending has to occur at all times. Just how many unemployed can we afford to have in this country when so many businesses are getting gst refunds and are not paying any tax as they are not making any profits.
Ex-Agent: You know better than most, that New Zealanders have done their spending already. That's what 'kept us afloat' over the last 10 years or so. Like all borrowing-to-spend ( which is what Key is finally saying we need to address) a time comes when it has to be repaid. Now is that time. If we don't have the 'work' to repay the debts, we have to sell whatever thing it was we bought, to repay them. That 'thing' is the property that contains the vast majority of New Zealanders savings. Those who have cash or 'credit' savings available may buy them ~ when property prices have fallen enough to 'tempt them out'. Until then, they will keep their wallets firmly closed, which will eventually lead to the hard landing in the property market that some of us see coming.
NA in case you are thinking it I am not promoting the thought that people should buy property. That would currently be very destructive for the economy. No I am talking about people spending on everyday items such as food,cars,home improvement/maintenance items, appliances, even boats and other toys if they can afford it. This economy of ours needs to roll on.
Likewise. But where will that 'spending' money come from? Households in general, either don't have it, or have racked up debt of all kinds, and can't borrow any more of it. Wages will go up, then? Highly unlikely with unemployment fragile, and export demand, globally, down. The spending on everyday items can't be done...unless accummultaed savings in property are released. They are there, alright! But no one wants to get them in case they "sell at the bottom" or have to take 'less than they want'. The bottom for property, as you and I both know, is miles away from here. So what else will squeeze the savings out? A harsh bought of economic pain....and that's just about to start. As Wolly posts "Get it over with!" Then we can re-build.
I tend to agree with ex-agent on this one, Nicholas. I've been watching his posts for the past few weeks and it seems that he has his ears to the ground re: the wider economy. There is a train wreck around the corner in retail and consumer services that unless averted will have massive implications for the wider economy.
As you rightly allude to, the crime of it all was that the previous administration allowed the illusory wealth bubble to inflate as far as it did - but 'prosperity' was good for votes and GST takes to be channeled into vote-buying schemes (WFF & student loans).
This led to an absurd focus on retail consumption as the engine room of the economy (non-essential fashion-driven housing purchases are no more than retail purchases dressed up as an asset in my opinion).
Yes, there desperately needs to be a 're-balancing', Yes property prices must drop in real terms (inflation is helping to chip away at that). But a sub-apocalyptic collapse of the consumer economy will be no fun for anyone bar the ultra-rich and cashed up, and it will shred the country's books.
We need to engineer a softish landing on this one.
A curse on both their houses.
Both are comfortable running an unsustainable regime, there's no diffo between Key and Goff.
They're just squabbling about who gets which share of the cake, an argument Goff will win, because there are more disenfranchised voters than winners - Which Key relies on a combination of spin and lack of comprehension to neutralise.
None of which addresses the real question:
At what rate is the cake being eaten?
....................... Both are comfortable running an unsustainable regime, there's no diffo between Key and Goff.
Your right. The false Left-Right paradigm keeps the peasents from discovering the alternative; Libertarianism. Currently its the perfect Hegelian dialectic, control both sides, control the outcome.
Looks like the "debate" has already begun with the topic of confiscation of money from its citizens (aka Tax) to build an ever growing public sector. Can't wait until they drag out the old "Job Creation" myth, and NZ's old classic "Export led recovery". Should be a humdinger.
Got your popcorn??
A Few Suggestions to Improve the State of the Union
by Bill Bonner Tonight, Barack Obama issues his State of the Union address. We are tempted to send him some ideas:
"My Fellow Americans," we would begin. "I've got good news. And I've got bad news.
"The good news is that we've eliminated the paperwork associated with the Food Stamp program.
"The bad news is that we've eliminated the program too. Well, that could be good news too, depending on how you look at it. I don't know how the US federal government got into the business of feeding people, but now it's getting out.
"And the good news is that the troops are coming home from Iraq, Afghanistan and 100 different other countries. We have so many troops overseas, we've lost track of them; for the life of me, I can't figure out what they were supposed to be doing over there.
"The bad news is that they probably wouldn't be able to find jobs in America today.
"But the good news is that we're doing something about that too. I'm eliminating all the labor legislation and all the nonsense regulations that keep people from hiring. You want a job? Get in line behind all those Hispanics waiting on a street corner. You want a job done? Find yourself a good worker.
"Oh...and here's some more good news. The US isn't going broke. Not on my watch.
"Why... I'm proposing a balanced federal budget. What was the matter with George W. Bush, anyway? It's not that hard. You just figure out how much you've got to spend and you don't spend a penny more. Simple arithmetic. The budget deficit for this year? Zero."
Of course, if we were delivering a State of the Union address, we'd probably be impeached before we got to the end of it. The nation wouldn't accept a president that didn't go along with the game.
What's the game? Well, the US government has a mission. Its mission is survival. And as the years go by, more and more people want the government to survive. Because more and more people have a stake in it.
Like the 43 million people who get food stamps. Or the thousands who get rich on military contracts. Or the millions of retirees who are counting on Social Security.
Not that we begrudge these people their ill-gotten gains. Not at all. They're just playing the game too.
But over time, the game comes to be more and more expensive. More votes to buy. More people to pay off. More favors to pass out. More and more deficits. More and more debt. More and more interest to pay on the debt. Then, you have to borrow just to cover past borrowings.
And eventually, you can't continue. Lenders balk. You run out of money. Game over.
Regards,
Bill Bonner,
I don't get this fixation with the idea that house prices are too high and I do wonder if it is some people just hoping for an economic calamity in order to pick up a bargain or be able to buy a house or a larger house without contributing enough to society through working and saving to be able to.
Building a house seems to cost at least as much as buying an existing one. Inflation has severely eroded the value of the NZD over the last decade.
The main problem is that such a tiny percentage of NZ does anything productive that as a country, we are getting poorer by the day.
We can't have it both ways - most people not working and having a prosperous society. Reality just doesn't work that way.
Clarification please
John Key says NZ Foreign Debt (public + private ?) = 85% GDP
Hickey says Government Debt (Foreign? Domestic ?) = 18% of GDP
Mr Hickey - 3 questions
(a) assuming Government Debt is all Foreign Debt, then the remainder of the foreign debt of 67% is private, where the heck is it going. What is the private sector doing with all this overseas borrowing?
(b) is the NZ borrowing of $250m per week public or private sector borrowing?
(c) the $1.15b borrowing in the past two weeks all government public sector only?
"Where the heck is it going"....!....you should think 'where the heck has it gone' icon....it went into bloating the property prices and handing the banks the future wealth of the country...the govt bit went on feeding the benefit army and employing Helen's mates in govt jobs...buying bloody train sets!
The current borrowing is going to feed the even bigger benefit army because the govt promised to dress up in Helen's red skirts for three years....and the economy dived into recession leading the rest of the world as the cheap and easy credit bubble began to choke on the madness.
Now you are left with the bloated property sector..the dead building sector...the benefit liabilities...the fiscal hole...the growing govt debt position and to top it all off...you still have the housing sector feeding the banks to finance the debts to keep property seriously unaffordable..
Do you subscribe to the view that "all" the private sector borrowing was, in the past, going in to property, and current on-going private sector borrowing is still going in to property? Which raises the proposition that de-leveraging hasn't happened and still isn't happening.
Which raises the proposition that de-leveraging hasn't happened and still isn't happening.
Absolutely. The rate of growth of debt is slowing a bit (numbers escape me - I think total debt grew by ~4% last year?) but it is still growing. We are still running a current account deficit (just like every year since 1978) with no obvious route out.
Part of the problem is that the conversation always devolves into savers vs. borrowers, ratrher than focussing on the need for a massive increase in value of export-EARNINGS within the NZ economy to tip the CA into surplus. Of course that relies on the rest of the wrold buying stuff we can supply - and the globe just aint feeling that flush at the moment.....
Data looks quite flat to me over 2010, but debt is up since 2008..
http://rbnz.govt.nz/statistics/monfin/rbssr/rbssrpartC2/data.html
Icononclast.
Briefly;
(a) NZ government debt is almost exclusively foreign-held. Some is traded on the NZX to domestic buyers but unfavourable tax treatment and low rates compared to banks make it unpopular with NZ investors (Bernard had a story about this recently).
Private debt of ~70% GDP is almost exclusively overseas bank borrowing on the wholesale market. This money is being used to fund private property mortgages totalling >$100bn. There is a tiny amount of Private equity debt too (which alos passes through the banks) - see eg the Tegel story currently on interest.co.nz.
(b) This is government borrowing issued by the NZ Debt management office (ie NZ government bonds).
(c) This is also government bonds - numbers can fluctuate from week to week and this figure includes both roll-over debt and "new" debt. (the $250m pw - which is actually now nearer $275m pw - refers only to new debt)
While underperforming minister and parliamentarians play daily Kindergarten in parliament - the peasants again turning on each other - going around a circle - hitting each other to dead – with minor issues - well done people.
When do you people start talking “CLEAR TEXT” and debate on performance of ministers the real issues of our mismanaged economy – when do we make our politicians accountable ???
It get’s even worse – this just breaking news:
http://www.stuff.co.nz/national/politics/4582922/Key-reveals-plan-for-a…
I think the basic problem is treating 'the economy' as a noun.
As real, and above all else.
Monetary systems were always just the facilitation of real trade, when did they become paramount?
The real world is peaking in deliverability about now, in many things. That 'economy' is irrelevant in that light, just as the value of White Star Line crockery became moot underwater.
It's a physical world we live in. We are so numerous and impactive now, that that physical world is our responsibility - we have the power to stuff it completely in one generation.
So it's the physical world I'd like Key to address - but of course, he knows nothing about it. We elected the wrong person with the wrong skill set to do the wrong job.
Exellent.
The Greens in my opinion really have a chance to shine. Given the problems in the Maori Party, combined with the vacancies in their line up created by so many of their 'old guard' standing down.
What they need to do is distinguish themselves by being the only party willing to seriously address both sides of the ledger - tax AND welfare reform. Given Gareth Morgan has researched not only that question, but additionally our health sector problems as well as climate change ... they'd be on a winner if they could recruit him into the party.
They'd need to be prepared to campaign on some pretty serious change platforms however.
Gareth Morgan thinks the Limits to Growth is all cobblers. (Poles Apart, p17, from memory)
Unless he's had an epithany, I doubt he'd be much use.
Funny, you'd think the fact that he had to fill his tank at regular intervals might have suggested something........ the only difference between the tank and the planet is scale.
Well, Kunst, it's a little bit difficult to do that in NZ because under MMP it's the party vote that actually counts rather than whatever electorate MP you vote for - the only vote that can be done on an assessment of a candidate's merit.
Sadly under our foolish own-goal electoral system none of us have any direct vote control over the very thing that is the most important for determining who will be in the next Parliament and Government. The Party List.
David - under MMP we can make a fine selection of candidates, who is performing – IN - and who isn’t - OUT.
http://www.elections.org.nz/voting/mmp/two-ticks-too-easy.html
The news then that Key is looking to sell off chunks of the power generators and other stuff post the election...this will have Goofy and Klingon spitting tacks...about all they can do with a 28% rating!
Anyone willing to buy shares in one of these new entities...remember the price of Telecom shares...might be safer to sit back on these.
Why would govt want to retain majority ownership?
Wolly - if you don't want your share I'll take them off you right now. The electricity SOEs will be a goldmine for the following reasons:
(1) They will - as always - be undervalued at issuance so as to ensure a successful listing ( political manouevreing will demand this).
(2) National will fail to regulate the industry adequately before issuance. As a result these pseudo-monopolies will start hiking prices rapidly so earnings per share will go through the roof over a couple of years.
(3) The SOEs will immediatly stop installing any new generation. This will continue to push up prices for the next 5-10 yrears until black-outs in auckland become a monthly occurrence. Then they will dribble supply in at a threshold ROI of >20% of new asset value keeping the nation on the brink of a fundamental supply breakdown.
(4) When the supply contract with Tiwai pt expires in 2016 (I think?) it will be redirected to the consumer market resulting in an immediate >40% hike in profits for meridian. Of course, Tiwai will be priced out of the international market and forced to close, thus eliminating 12% of NZs export income and losing ~500 jobs - but hey thats the free market in action....
Get with the program, Wolly - its win-win!! :-{
If Telecom is anything to go by, you should get to hold for a good 5-10 years before political regulation catches up with private profit margins. And if the generators succeed in targeting 20%pa return on asset value over that period, then you will have doubled your money on dividends alone...
Nah...don't buy that CB...count on massive Cabinet meddling and the profits being injected into new generation at govt direction. If there is a pump and dump it'll be a 12 month wonder at most and that blather about Kiwis having first bite of the apple...just spin. Doubtless all the 'news' will point to huge demand...the issues promising to be oversubscribed..blah blah blah..and yes the issue price will be lost in a rapid flurry of media BS only to fizzle back down and sit below the issue price within the first year. From which time on the divs will equal the awful ones coming from bank deposits. 4% at the very best...fully imputed to add a gloss .
Meanwhile the Kiwi/aus fx fluctuations will be rolling along choppy as hell and promising to give a 5% boost on top of any oncall rate picked up both sides of the ditch...!
For the sake of the country I actually hope you're right Wally. But the ex-SOE Boards will have a fiduciary duty to the minor shareholders, and if the government attempt to direct that sort of behaviour then they will be buying themselves a massive legal fight. And the SOEs will definitely fight, because the longer they can draw any legal process out, the more money they can make in the meantime - just like Telecom did regarding the fight over competition access to the lines in the mid-late '90s.
Either way its money in the bank for shareholders for years to come - with the all-powerful wholesale electricity market set up as the fall guy for future governments seeking to shift the blame for stratospheric power prices.....
History doesn't so much repeat, as play a riff with minor variations.....
"...the ex-SOE Boards will have a fiduciary duty to the minor shareholders"...Harhaaaaaaaaaaaaa hahahahaaaaaaaaaaa
It's not "money in the bank for shareholders" CB....it's shareholders savings into Cabinet hands for them to play with...in exchange for what...shares that pay out less than the cost of money if borrowed by the govt...that is the target...cheaper money for govt...stolen from fools who dream of past returns...a pigs ear made to look like a silk purse...and why not sell them to non Kiwi?....because it's much harder to find as many idiots on the international market.
I think you underestimate the power of the fundmanagers (and the rapidly growing kiwisaver providers) who will end up holding the majority of the 49%. There is no way they will allow dividends to be confiscated without making a hell of a lot of noise. You can bet the Herald and Dom will carry daily editorials about 'protecting M&D" investors and "not allowing the NZX to be discredited any further". And of course you can be sure that these same fundmanagers will end up being major political campaign contributors...
Now, eventually as prices and dividends rise, the government will realise that the electricity generators are stiffing the country and will look to regulate away earnings- but that will take YEARS - firstly because National will refuse to admit they made a mistake - and then because there will be a big legal fight that will take years to resolve.
Incidentally the government's target here is to release current asset equity - not enable reduced future taxpayer outgoings (which it won't achieve, as tax payers are also the same electricity consumers who will be paying through the nose ) . After all, why bother about the future? - Thats some other government's problem.....
I'm sure you're right about 'releas(ing) current asset equity', CB ; But not the one you're probably inferring ~ the equity in the generators. It's the householder's equity in their property that they are trying to 'release'. Get those who have spare equity in their houses investing in the SOE's and not 'just another renter' is the name of the game. I mean; if one has X amount of equity in the family jewel, then why not leverage a bit back out at ,say, 6% for Y number of years; offset the interest payable against dividends receivebale for an added tax enhancement, and Bill's your Uncle......
I'm not so familiar with the NZ electricity market but I do know a fair bit about the electricity and gas markets in the UK, both of which were privatised some years ago and which have not developed in the way you are describing here.
You describe the generators as pseudo-monopolies. Are they or aren't they monopolies? Do electricity purchasers get a choice over where to buy their electricity from?
Restricting supply so as to push the price up is what you do if you are an unregulated monopoly, or acting in cartel (which ain't legal) with others in a limited oligopoly. But if you are a supplier in a competitive market, deliberately restricting supply will avail you nothing. Your competitors as well as you will benefit from the increasing price; and if you don't, they certainly will seek to expand their market share by expanding their capacity to supply.
This is what has happened in the UK gas industry, where the supply side has invested many billions of pounds into new import and storage facilities with the result that the UK's gas market now benefits from ample and diverse supply capacity and is currently sailing through the most difficult winter for years. It would also be happening in the electricity market if it weren't for the UK Government's endless incoherent and economically illiterate meddling, but that is another story and by no means an inevitable consequence of a partial privatisation as is being proposed here.
Why would Tiwai Pt not get the opportunity to negotiate a renewed wholesale contract from Meridian or one of its competitors? I should have thought such a supply contract with a very large consumer like that would be something any generator would want to compete for. They are much more reliable and cheaper to supply than are retail consumers so should be well placed to negotiate a lower unit price. Of course they will have to offer a price which makes it worthwhile for a supplier to supply them, but you are surely not suggesting that they should get electricity at subsidised prices?
I'm trying to become a real kiwi, and I understand that worms form part of the staple diet for that admirable bird ...
My post is honestly a genuine attempt to understand whether the argument is that electricity privatisation doesn't ever work, which I would dispute, or whether there's something about the NZ electricity market which means that competitive pressures can't work /here/. For example, it's a much smaller market than the UK, such that one decently-sized power station and/or one sizeable consumer would make a much greater difference to the supply-demand balance than it would in the UK; that might make a difference to the viability of competition. Also, with a population widely dispersed over a similar (but much more mountainous) area, it may be the case that there is not a single integrated transmission system which can take power from any generation point and deliver it to any consumption point in the way that National Grid can, in which case the opportunities for buyers to put competitive pressure on suppliers would be more limited.
Hi MdM,
Sadly NZ is not the UK. The main problem is that the NZ government is too small to regulate the industry effectively - a phenomenon which Telecom gamed very successfully during the late 90's to gouge huge price rises and restrict market entry by competitors.
Strategically, the NZ electricity market is undercapitalised and is limited by both transmission and seasonal production. New generation is also extremely slow to come on line due to protracted resource consent processes which fail to give weight to strategic generation considerations. Basically we are ~65% Hydro - all located in the south island (~1200 miles form the main load in Auckland). The lakes are shallow and river-based so there is only ~28 days storage . balance is ~15% geothermal, 15% gas and a little bit of wind. Transmission is controlled by another SOE - Transpower - who own the national grid, are under capitalised and face major resource consent obstacles every time they try to upgrade any line, anywhere. auckland has had 2 major blackouts in the last 3 years due to transmission overload at its main node to the grid.
All this means that the gen-tailers are geographically limited in where they can sell their power, with most provincial areas only having one or two available suppliers (hence pseudo-monopoly). Retail prices vary around the country - generally rural consumers get charged ~25-30% more than urban consumers. Gen-tailers try to balance supply and retail demand, as any difference has to be made up on the wholesale market which has become VERY volatile over the last few years (don't buy the 'increased stability from market re-structuring" guff that Key spouted today - wholesale prices are all over the place and everybody suspects the generators are gaming the system).
Most of the generation assets are > 20 years old and fully amortized - but the SOEs pay large dividends to the government at the moment (which are justified using adjusted - and highly inflated - present-day asset values).Electricity retail price inflation has run at ~ 8% for the last 12 years. The government treats the dividend income just like additional tax-take - it goes into the central pool never to be seen again.... As sole shareholders, government have in the past quietly instructed the SOEs 'not to take the p***" with regard to price increases - which works to some extent and at least ensures that the fully privatised generators compete. It is noticeable however that they all generators pretty much move in lock-step - it certainly already looks like a cartel behaviour from the outside...
Moving on to Tiwai pt. (This is a doozy). The aluminium smelter uses 15% of the total national supply. 90% is supplied under a fixed price contract at a massive 50% discount to the retail consumer price (its a 10 year contract). Again theres some behind the scenes politics here, with the call being made that reduced dividends were a cost-effective subsidy for the export earnings, additional jobs and regional economic stimulus that the smelter provides. But the contract will bebup for renewal ina few years, and privatised generators will probably make a very different call on price.
To be honest I'm not a fan of the UK privatised industry either - and it cannot be denied that shareholders who bought at issuance have done very well out of these formerly state-owned assets. At the end of the day, I do not belive that piece-meal privatisation is either the only nor the best solution to bad management practice within state-owned natural monopolies. (Good management is an end within itself). I wouldn't be too smug about the state of the gas market in the UK either. Everytjing looks OK as long as the 'stans keep the gas flowing, but with 60+% of supply now coming through the Azerbaijan pipeline, there are some serious geo-political risks around the UK gas market . NZ has a lot of problems, but at least we are self sufficient when it comes to electricity supply - (as long as we keep the Grid up and the generators in NZ hands).
Hm, much as I'd imagined - a combination of NZ-specific circumstances and mismatched expectation as to what a market should deliver. Thank you for the explanation, I do not agree with all of your contentions (eg I would not see it as a market failing if prices are volatile and inconsistent between rural and urban consumers, or between industrial and household consumers) but will not take up more of your time or the forum's space by sidetracking onto a point-by-point exploration.
Apart from one - where are you getting your information from regarding UK gas supply? Most of what's imported (the UK is still able to meet about half its daily winter demand and most of its summer demand from domestic production) comes from Norway, with LNG from the world market making up most of the remainder. The UK has been able throughout this winter to produce and import enough gas not only to meet its own needs but also to re-export to the rest of Europe.
The rest of the EU market is indeed arguably over-dependent on suppliers to the east, but that's because they haven't invested in supply capacity and diversity like the UK market has.
Hi MdM,
Recent report on UK gas supplies (storage down to 5 days again a fortnight ago):
http://www.guardian.co.uk/business/2011/jan/09/gas-supplies-five-year-low
Winter demand is what counts, as it represents full utilisation of supply capacity and key period of vulnerability. The key point is that on-shore storage of imports is still an IMPORT. Imports rely on a willing supplier, and result in the UK being a price-taker. In an energy-constricted world thats a dangerous place to be. I like the fact that NZ doesn't have to deal with Russians, Arabs or even Scandinavians in order to turn on our own hydro taps and "let the power flow" . I worry that in a privatised system ,new installed generation will be limited to the extent that it artificially constrains demand growth, in a manner that is detrimental to the wider national economy.
I was a teenager in the Uk during the late 80's early '90s. My (somewhat hormone addled and distracted) impressions were of rapidly rising power prices, poor maintenance and stalled projects that accompanied the first few years of power and water privatisations. But i would need to do some data digging before stating that as fact. The UK situation got better because government tightened up regulations. But thats no sort of free market - its just privatising the profits and socialising the risk.
Chris B & MdM -- great posts.
One of the key differences between the UK and NZ is simply that the UK can get energy supplies cost efeectively from other countries in Europe ( be it gas or electricity ) if need be. That is there is a competitive element that does not exist ( at present ) in NZ.
BTW -- comparing this situation of potential asset sale with Telecom is somewhat an "apples and oranges comparison" --- after the Telecom sale the world has seen a massive technological change in telecommunications which is unlikely ( in the near future at least)with electricity supplies.
Hi Ross - yep Perfidious Albion has historically leveraged its relationship with the continent to its advantage, without ever acknowledging the benefits! But in the early 90's the electricity and gas sectors really were totally isolated from mainland europe, so there is still a valid comparison to be made.
All infrastructure businesses require extensive and ongoing technology investments. Telecom basically stopped this for 10 years and then wailed when the government eventually lost patience and regulated them into doing something about broadband fibre (and that still hasn't worked very well , even now). Over the next 15 years Transpower will need to replace and upgarde ~ 40% of the total transmission grid with concomitant costs to be passed on, whilst generators will need to commission ~ 3GW more generation capacity. As we have pretty much run out of large hydro candidates (bar a few projects that are politically stalled - probably for ever), this mean new projects and technologies in geothermal, wind and, (whisper it quietly) Coal. These will also represent a major paradigm shift for the businesses that privatised companies will delay as long as possible - to the detriment of the country at large.
Tiwai Point Smelter
If my memory serves me correctly (I was on the periphery of the deal) Tiwai Point Aluminium Smelter was purpose built to take the substantial spare electricity load from the (clyde? hydro scheme)
(a) Energy is the largest single Aluminium smelting input cost - approx 60%
(b) Most aluminium smelters are located at or near to a low-cost energy source
(c) Most low-cost energy sources are government sanctioned or controlled
(d) that is they are or were dependent on government guarantees / incentives / subsidies
(e) Energy is at a high in its cost cycle
(f) Energy costs are going to rise further as incentive-contracts expire
There are several key factors that limits electricity transmission, such as the distance between the generator and the end user, the power of the original transmission, the material used to carry the electricity and the location of transmitters and capacitors. Any of these factors can limit the strength of the electrical power to the end user.
As energy is transmitted along a circuit, a certain percentage of the power is lost. This is due to the energy required to move the electricity from the power generation source to the user. The rate of loss is defined in Joule's Law. This law states that the amount of energy lost is in proportion to the squared value of the current voltage.
If memory serves me correctly it was actually the Lake Manapouri underground Hydroelectric Power Station that was purpose built to supply Tiwai Point back in the early 1970s. The Clyde Dam was built in the mid 80s. As far as I know Manapouri still supplies all of Tiwai Point's power needs, The Clyde dam I guess feeds into the national grid. From time to time when the Manapouri contract comes up for renewal there are often very vocal arguments that the smelter is getting its electricity far too cheaply and that it would be better to shut the smelter down and divert that power into the national grid. Because of its generation capacity it would flood the market with potentially cheap electricity.
sorry don't agree - with the government a controlling stakeholder they also have the ability to repurchase shares down the track if prices fall. We pay a high price for electricity now as a nation. The ability to increase prices further is very limited. Price gouging will also be controlled by the electricity commission. I doubt therefor we will see a repeat of Enrons antics. Finally interest rates are low and will be low for some time. The expectation of high yields will be unpalitable. ROI in excess of curent market expectations again will trigger a further share buy back. Why pay cretons > 3% when you can borrow at bugger all at the moment. Dividends will be very modest. Either way the government is in the box seat.
(1) Telecom shares dropped to less than 1/3 between 2003 and 2009, government, quite sensibly did nothing. Why on earth would government repurchase shares unless there was an actual strategic threat to the country? And if there is a threat the n you can bet they will end up makiing a massive loss on the deal when it comes to recapitalising the company 9just like kiwirail).
(2) Current yield on NZ government bonds (ie government borrowing cost) is 5.5% (this is >3%).
(3) Since early 2010, the commerce commision has taken over price regulation from the electricity commission (who are now basically toothless and pointless). Quite frankly, when it comes to the electricity market, the commerce commssion don't have a clue. Regradless - the EC has been quite happy to preside over a doubling of electricity prices over the last 10 years. The Gen-tailers have found it pretty easy to construct self-justifying and obfuscatory arguments around "new" investment costs whilst the regulator has been overworked, underskilled and cursed with outmoded eceonomic ideology... Of course the govenment of the day has raked in the dividend profits and not raised an eyebrow...
In a modern western civilisation everybody needs electricity. It is a fundamental requirment like water and sanitation. Furthermore in the modern global export conomy - the actual currency of value is embodied energy. Countries with cheap power can make cheap goods (e.g. aluminium, iron, mechanical parts etc - spund like any state-controlled economy with subsidised energy that you can think of?) As such, electricity price is a tax on both people and the export industry. if you actually want to hgrow the economy, and reduce social inequality at the same time, the correct course of action is to REDUCE electricity prices - NOT take indirect actions that are a one-way stree upwards for the price ( and downwards for volyume and supply security).
I don't mean to be rude here - BUT GUYS come on!! This stuff is REALLY IMPORTANT and the level ignorance and incorrect factual statements here is terrifying. The MED, Transpower and the SOE websites themselves all have loads pof info on the state of the system and how it works. please get educated and then educate your friends. tehre is no chance of a coherent debate on this topic without basis in some accurate facts.
Why did Telecom drop 66% after 2003? Because the Government did do something. It changed the industry rules. Now we can discuss the reasons around ' fair competition' all you like. But herein lies the problem for the future of any floated SOE or critical infrastructure installation - Government meddling at it's whim.
I think Key should be asked to show us the data that supports his contention that the budget will move into surplus at the end of 2014...because I don't believe that is possible....unless we get a new interpretation of the term 'budget surplus'....perhaps it will be one that leaves out any cost associated with financing previous debt...a real "Bernanke" job.
I'm not bleeding reading all that fluff...cut to the chase Bernard...how can a reduction in the increased govt spend bring about a return to a surplus by 2014 or 2015 for that matter...it's mind warping waffle. Show us the stats...give us a table showing the expenditure happening now and the revenue grabbed now and how they expect both to change.....oh sorry...that shite is a state secret.
I think this is pushing our luck, in fact id be amazed if we got %3 growth and falling unemployment.
If we get nil growth and rising unemployment, what does it do to the books mr English?
.>>>
Treasury is predicting growth in excess of 3 per cent this year, together with higher wages and falling unemployment.
I think they know what I rabbit on about.
That energy is the only wealth - nothing else happens without it,
They have the Parliamentary Report into Peak Oil. They have the official IEA stuff. They have read the USA and German military stuff.
They're putting their cronies paws on the Achilles heel of resources, with just enough placatory spin.
I think Key has misjudged - the middle-ground is cottoning -on now (that Ryan interview being an example) and they're not going to swallow the Telecom line again. They're the same 'investors', but they're grandmum and dad now. Once (telecom et al) bitten, and worried about their legacy.
" The way for NZ to get ahead is to sell more to the rest of the world " ...
.... Seriously ? We export ample quantities now , for us to be a wealthy country !..
Pour more water on soil not suited to irrigation ? .....Squeeze more out of the cows ?
......... We earn bucket loads of dosh ...... The question is , why doesn't that enrich us....... where does it all go ............
Will increased exports merely lead to the government spending more ? Or to private individuals ( aided and abetted by Ozzie banks ) to go on another orgy of spending and house trading ?
It's so gratifying as a taxpaying citizen of NZ to be promised first dibs at buying back overpriced crumbs of valuable national assets whose purchase was funded by my parents and grandparents generation.
Even better, I will be able to look forward to doing my little bit at pumping up the annual dividend by raping and pillaging my friends and neighbours wallets with ever increasing power prices - I'll think of my dividend as form of electricity rebate/wealth re-distribution.
We should probably get some ex-Enron staffers over here as consultants to figure out if we can virtually trade our off-peak electricity with India, in order to maximize the spot price to global market.
Then in 25 years time the Government - probably a Labour/Greens/NZ First mutant coalition - (yes, Winston will still be going strong) can buy back the dilapidated, asset stripped remnants for twice as much as they sold them for and then spend triple getting them operational again.
I frickin' love free market economics - they rule!!!
@@@@justice. I'm afraid I have to agree. Key looks like someone just kicked him out of bed. I think he may have gotten a late-night phone call from one of his mates in the financial community telling him NZ's game was up. The fantasy land comment is about 5 years too late. A bit of window dressing in government departments & few of power companies on the auction block won't save New Zealand at this late stage. The notion that increasing the savings rate in a country where property speculation is the second most popular sport is a bit far fetched. The banks are desperate to keep the housing ponzi going, they simply can't afford a public that saves instead of borrows.
My guess is that JK is tired of politics. He's telling it as it is with one eye on a comfortable prime ministerial retirement. The money markets must seem like a play-pen compared to the halls of the beehive. You can't blame him really.
Ah well, he can always bugger off to Hawaii to jawbone with his mate Barrack.
Did we not sell our railways once, only to have them stripped out no capital spent on upgrading the line, government buying it back as it was of national signifcance to have a railway line that works. Much like an electricty generator I am guessing.
Sell more overseas, what are they doing about the xrate?
Yes we did. Second only to energy supplies, is rail.
Amazing how many folk don't realise where things are going, or how fast.
Steel-on-steel and gentle gradients and one diesel/electric to huge loads, are infinitely more efficient than trucking. Show me someone who says otherwise, and I'll show you a lobbyist or a transport owner.
Roads are made from oil, with machinery that runs on oil, and there were never more roads than when the supply peaked - stands to reason. As per Cuba, there will be a lag time, then lack of maintewnance will slowly put the screws on.
Our hydro is something we need to keep completely. Worth marching about, even.
Steel-on-steel and gentle gradients and one diesel/electric to huge loads, are infinitely more efficient than trucking.
Murray, these guys are claiming 500 miles per US ton PER GALLON of diesel!
http://www.csx.com/index.cfm/responsibility/environmental-leadership/
3-4 times better than the best truck.
If any governement asset should be sold its Kiwibank
Its pricing is destroying the New Zealand financial system; especailly those that are New Zealand owned, and it will eventually need capital anywayt - which will have to come from offshore
So all it is doing now is destorying local competition ot Aussie banks - that is not government supported, and building up a net liability to the crown that the taxpayers will have to fund or sell offshore - leaving New Zealand wiht no local banks whatsoever.
SELL KIWIBANK NOW!!!
A A A - ah, now I'm with you.
Yes indeed, all banks are in that boat.
But it raises another can of the same worms - ACC and the Super Fund (and I'll bet lots of other pools of dosh held on our behalfs jointly and severally) are in the same shyte.
What's the natural level for the Dow, say 5 years from now? 4000? 3000? Can't be much more, and it has to track energy down.
'T'aint just banks are in trouble. Where would ACC and the Fund be then?
Which raises the obvious answer to Govt debt - if we accept the we are all poorer than we pretend to be, and are about to get poorer, should not we acknowledge the fact by lowering Govt Service wages/salaries appropriately?
It won't make the populace 'richer', of course (something a few here don't get) they'll have to do it too.
A A A - ah, now I'm with you.
Yes indeed, all banks are in that boat.
But it raises another can of the same worms - ACC and the Super Fund (and I'll bet lots of other pools of dosh held on our behalfs jointly and severally) are in the same shyte.
What's the natural level for the Dow, say 5 years from now? 4000? 3000? Can't be much more, and it has to track energy down.
'T'aint just banks are in trouble. Where would ACC and the Fund be then?
Which raises the obvious answer to Govt debt - if we accept the we are all poorer than we pretend to be, and are about to get poorer, should not we acknowledge the fact by lowering Govt Service wages/salaries appropriately?
It won't make the populace 'richer', of course (something a few here don't get) they'll have to do it too.
Wolly. . . I fear the s#*& will hit the fan this year in New Zealand. The country is so underwater & it's population so detached from the reality of their precarious financial position it is just not funny.
The levels of borrowing are just stunning - yet, this Government are probably powerless to prevent the approaching train wreck.
Yeah sick alright...I didn't know we was paying $120oooooo every week just to finance existing debt....over 6 billion a year....and going up....and rates set to rise too........but hey we have new spin doctors in wgtn spinning the good BS and a stupid population too dumb to know a deficit from a Dudong...what could possibly go pear shaped!
Yet no one has commented on the private debt which is the mind boggling bit......Plus the govn finances were actually pretty reasonable until Brash started the lolly scramble in 2005....
The Govn is locked into its tax rebate mantra, to give the tax cut in the present situation is shown to be the mistake it looked to be....
Around thw world its Govn's who are forced to step in to stop the collapse of the country in Q....debt and free marketeering or maybe that should be racketeering has brought us to disaster...
regards
Good point on private debt. Dealing with this structurally is a major difference between 'New' (?) Labour and NACT. Labour are saying they will reform monetary policy, NACT are still maintaining the TINA stance and have said zip on this. I expect Labour will make more of this difference as they deal with the NACT objections, as Labs reform ideas here would lead to a bigger pie by invigorating the real economy and improving export returns, receipts.
We can't turn a blind eye to public debt growth, but if private were lower and a greater proportion used for productivity growth instead of property price growth, (sigh) public debt would not need to have grown as much.
Indeed, mind-boggling that few are commenting on these aspects, or is it?
Cheers, Les.
FYI, a story here on ANZ supporting partial floats of SOEs - http://www.interest.co.nz/news/anz-calls-increased-employer-kiwisaver-c…
Yeah wouldn't it be nice if there was a party out there whose main priority was spending only what we can afford?
None of the existing ones seem to get that concept.
They all have their little area's that they do nothing but pander too.
If they not spending like mad, they are wanting to reduce taxes to levels that have exactly the same effect, they are both election bribes, just in different ways.
Currently Labours policies and lack of any fiscal responsibility at all scare me the most though.
Cost of living is driven by material inputs....ie oil....its not $40 a barrel anymore and wont again be unless we are again in a mega recession.......
Fixing up the country? re-directing the country yes maybe...
Muldoon seems to have got us into a big mess as well....however less of a mess than say the USA whos infrastructure was inadequate before it got into a poor state...
regards
Steven - oddly enough, Muldoons lot did Think Big because they had a Peak Oil report in fromt of them.
They were older-school, and probably understood time-frames better than the instant finger-snapping Key era.
They would have worked out that energy independence would be the all of it, hence Motonui et al, and perhaps even worked out that what it cost was irrelevant - it simply had to be had.
I didn't like Muldoon as a persona, but that set of decisions have not been appraised in anything but unthinking derision these last decades, and I think we're overdue for a re-look.
They may well have been 'on to it' in a way that leaves both major parties of today looking like turkeys.
Indeed. The Think Big projects of NZSteel (now BHP-owned) and Motunui (now Methanex-owned) have returned massive profits over the 30 year time-frame they were built for, as well as developing major export revenue and jobs for NZ Inc. Unfortunately the profits have been taken by foreign-owned private interests, due past NZ governments utter failure to finnce and hold these assets for long enough for them to realise a a retunrn on investment. The crap investment decision here was the Lange/Douglas decision to sell them at a loss - not to build them in the first place....
And yet still "Think Big" is decried as failed policy and a place where we may never dare to tread again. The Bogeyman of Muldoon continues to terrify and impede the nation even after 30 years. We really need some psychiatric help with this one....
The " crap decision " was Roger Douglas's selling these SOE's 100 % . He ought to have locked in 51 % government control , and floated the remaining 49 % onto the NZX , for private investors . Then he needed to place independent directors onto the board of each of these companies .
........ The NZX has few solid companies left on its bourse .......... The 1980's paper-shufflers ( Ariadne / Chase / Brierley / Equiticorp ) are long gone . And the NZX is a mere shadow of what it ought to be ........ Those SOE's would have put some meat on its bones .
For Muldoon carless days was a reality............ the current administration would find difficult to believe let alone deal with................and Douglas is more your mark for ditching SOE's maybe Bernard could get him on the chair for a real rooting tooting who should do what and how far that should go.
I'd take a stab and say there are some happy faces in the ACT inner sanctum.
David - under MMP we can make a fine selection of candidates, who is performing and who isn’t.
http://www.elections.org.nz/voting/mmp/two-ticks-too-easy.html
Key is now showing his true colors. He has taken money from the average New Zealander through the GST rise and a raft of other government charge increases, and given it to the top few percent income earners through tax cuts. As a result he pushed the country into an unsustainable government deficit, which he now proposes to patch temporarily, by selling off these extremely good assets. It is fair to assume that the only New Zealander's with sufficient cash to purchase and continue to own them will be the same top few percent of income earners. In other words he gave them the money from the public purse to purchase the companies and created the circumstances that necessitated their sale in one move. No doubt about it, he is a cleaver man and and one can now appreciate how he made the many millions that he has. However behind all the smiles and affability he is definitely not working in the best interests of the average New Zealander.
This whole issue is tragically pathetic and akin to shuffling the deck chairs on the Titanic. Is this the best we can do to help our selves? What is needed is an environment where new export income producing and import replacing industries will flourish. Then these big brave investment companies and captains of the establishment can make a positive contribution to every bodies long term interests rather than picking over the few tasty bones that remain from our national economy. Obama's state of the nation address yesterday was such a marked contrast to Key's offering.
Chris you are just another example of an ignorant NZer who is jeolous of those who have probably studied harder, worked harder and taken more risks than you. Here are two points to consider. The whole idea of reducing the tax rates and increasing gst was to give people more money in their hands after tax is deducted and then you decide how much of it you spend and pay gst on. Before that we all just got taxed hard. There is also an incentive for all of us to work harder and pay less tax.
Secondly the top 12% of NZers pay 47% of the tax collected. How fair is that. Why don't you get out there and improve your income. You only have to earn around $100,000 or so to be in the top income earners in NZ. We certainly are far from being a wealthy country. With attitudes like yours I am not suprised.
Probably a little heavy handed there EX Agent....because you don't gotta be smart to be a money trader....the attributes required are
....know your game...obviously
Have large testicles.... less obviously
insider feed.............occasionally
ruthless streak..........mandatory
TIMING............absolutley.
Key will survive for the same reason Silvio Berlusconi will remain in office...a complete lack of opposition.....particularly at the top.
If you are in fact earning that much (which I doubt) then the average NZer should in fact be thanking you as you being taxed heavily still and you and your small group of heavy earners and tax payers at the top have been and still are keeping the country going. A small percentage of NZ tax payers pay half the tax collected. That sounds pretty good for the average NZer I would have thought.
No body likes paying lots of tax, I agree. The only consolation that I can find in is that I should be greatful that I am in a position where I have to pay lots of tax. It would be a lot worse to have to pay no tax. (Not withstanding the leaches who who have a high income but go to a lot of trouble avoiding it completely) As you say we are not a wealthy country. This is despite the fact
A That we once were (despite, if I remember correctly, having a 45% coy tax rate and a top personal tax rate of 68%) and
B We are blessed with many natural advantages of geography and creativity.
The sad fact is that the position that we now find ourselves in is the result of decades of incompetent and self serving governments of both persuations.
I repeat these proposals of Key will do nothing to address the fundamental issues and are just another example of the bleeding of the country by narrow sectional interests. The game needs to be changed away from the speculative money for nothing investment mentality to one rewarding people who create real long term, replenishing wealth for the nation. Get these things right and then maybe we can improve the incomes of every one and thereby lower the tax for everyone. In this scenario the top few percent of tax payers will be even better off.
I thought it was very amusing for Keys to compare Hydro Power stations and airlines and suggest that the ownership structure is the thing that matters most when it is actually the thing that matters least.
Air New Zealand operates in a nightmare industry. Demand can shift in a minute, fuel costs are not really controllable. Competitors internationally operate out of no tax low wage countries.
Hydro Power stations essentially sit there in a very stable environment where profits can be essentially guaranteed years into the future. Of course there will be willing buyers at a good price. But why sell them. Power in NZ is essentially a political question not a market question. Large scale power development requires a political decision not an economic one. New Zealand has not been able to construction a large Hydro development in decades. We were told that we needed power to be expensive so that the power companies could invest in new capacity. only they didn't really. This is going to sound bad but New Zealand actually needs cheap power used efficiently not expensive power used poorly or not used at all. We keep on getting conned into paying too much because of a rationale that essentially goes 'we are bad an need to be punished' Fuel taxes, high electricity costs etc do not actually help. Mandatory fuel efficiency requirements on all imported vehicles- to drive up the efficiency of the car fleet over time. Cheap electricity but a requirement that it is used efficiently. Smart meters, smart appliances, etc.
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