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Gareth Morgan wants to take the setting of tax policy away from politicians and give it to experts

Posted in Opinion
There are some important policies that simply can’t be left in the hands of politicians

By Gareth Morgan*

Watching the political debacle unfolding over housing is as excruciating as watching the Black Caps play at Lords.

It’s a humbling experience, to say the least.

While I don’t know what is going on with the cricket I can tell you one thing that’s amiss with housing – in a nutshell, the issue of taxing housing is too political to be left to MPs.

There are some important policies that simply can’t be left in the hands of politicians and New Zealand was the first in the world to recognise that this applied to monetary policy, leading the way in creating an independent central bank in 1989.

While we may disagree from time to time over the merits of a particular central banker, overall the ‘experiment’ has worked well as is evidenced by the fact that most countries around the world now have independent central banks.

If in doubt about the ineptitude of politicians with monetary policy, just witness the nonsense MPs have been spouting about prudential lending limits – they are clearly unfamiliar with the concept of ‘oxymoron’ because there is nothing ‘prudential’ about ‘carve outs’ for first home buyers.

I think the time has come to consider creating an independent tax authority, ‘under renewable contract’ to Parliament.

The tax authority would be tasked with achieving revenue targets subject to operating within prescribed limits set by Parliament such as the balance of revenue to be collected between income, wealth and expenditure  taxes, goals relating to redistribution from rich to poor, and the parameters of some specific corrective taxes such as those currently on tobacco, booze and fuel.

This is just like the ‘policy targets’ agreement the Reserve Bank has with Parliament.

Beyond that, the authority would be free to design the tax regime that would collect the revenue in the most efficient way.

Assuming they chose the right chief, the tax authority would be governed by the widely accepted principles of a good tax system – fairness, efficiency and simplicity.

New Zealand’s current tax system doesn’t stack up as either fair or efficient because it doesn’t tax the full benefits provided by housing and other types of wealth which produce non-cash returns to their owners.

The key example here is the rental equivalent of living in your own home – it’s a real benefit to you just like the interest coming from your term deposit that you also own, but it’s not taxed. Other examples are capital gains on property, shares and other investments.

The result of leaving vast amounts of wealth untaxed is that savings are incentivised to flow into housing in particular, creating huge distortions in the economy. There are a multitude of factors working on house prices in Auckland, but being tax-favoured is a major one.

In 1997 American economist Professor Alan Blinder suggested tax policy should be handed over to an independent tax authority. In building his case Blinder explained why independence was so essential and effective in monetary policy, and drew parallels between monetary and tax policy.

The usual defense of central bank independence is more pragmatic than philosophical: It works, and for three main reasons. First, and least important, monetary policy is a somewhat technical field where trained specialists can probably outperform amateurs from the political realm. Second, the effects of monetary policy take a long time to filter through the economy, so good policy decisions require patience and a long time horizon – two attributes not normally associated with politicians. Third, the pain of fighting inflation (high unemployment for a short while) comes well in advance of the benefits…So short-sighted politicians with their eyes on elections would be tempted to inflate too much…

Blinder, Alan (1997). Is Government Too Political? Foreign Affairs volume 76 No.6 Nov-Dec 1997

Blinder then went to consider whether the same risk factors of technical skill mismatch, political short-sightedness and vested interests plagued tax policy and concluded that they did.

Wealth is concentrated to a greater extent in property compared to most other OECD countries, leaving households and the banking system heavily exposed to a correction in land and housing markets. Supply rigidities and tax incentives that bias savings decisions towards property investment have amplified the increase in house prices, widening wealth inequalities in the form of larger homes for those who can afford them, but deteriorating affordability for the rest of the population. Substantial distortions via tax planning have been evident in rental property markets. Although the 2010-11 budget introduced measures to reduce some of these distortions, further reforms are needed to remove the significant tax bias favouring housing.

Blinder’s idea didn’t get much traction at the time, but then the US’s tax system and those of other countries have been more comprehensive than our own.

The US has long taxed capital gains on housing for example, while Europe has had the more sensible practice of taxing wealth directly. The Netherlands even taxes the rental equivalent of owner-occupied housing.

While New Zealand’s monetary policy system was an inspiration to the rest of the world, our tax system is so inconceivably inappropriate that it summons forth derision, albeit often carefully veiled in policy speak. This example is from a 2011 OECD report titled “Policies to rebalance housing markets in New Zealand.”

Wealth is concentrated to a greater extent in property compared to most other OECD countries, leaving households and the banking system heavily exposed to a correction in land and housing markets. Supply rigidities and tax incentives that bias savings decisions towards property investment have amplified the increase in house prices, widening wealth inequalities in the form of larger homes for those who can afford them, but deteriorating affordability for the rest of the population. Substantial distortions via tax planning have been evident in rental property markets. Although the 2010-11 budget introduced measures to reduce some of these distortions, further reforms are needed to remove the significant tax bias favouring housing.

New Zealand has had a housing bubble for over a decade, the fizz went out during the global financial crisis, but it seems to be back.

Not only is National pretending the world doesn’t know their dirty little secret (‘we won’t tax you even though we know we should’) the tax policies the Labour and the Greens propose – capital gains tax with exemptions for owner occupied housing – are too timid to be our ticket out of this mess.

Not a capital gains tax but a wealth tax which includes owner occupied housing and is integrated with income tax would do a far better job of meeting those principles of good tax policy. See here for an explanation of the difference between a capital gains tax and a wealth tax.

Alan Blinder made a call to arms, we surely more than any other country, should be listening.

We succeeded in weaning politicians away from monetary policy, now we must turn our eye to tax.

All societies tend to see their current governing institutions as immutable, as if they were the natural order of things. But they are not. What men and women have created, they can change – and change they should when these institutions grow dysfunctional…the time has come instead for a real national debate over a question that no-one seems to be discussing: Might policies be better, and …democracy stronger, if more public policy decisions were made on less political grounds. It is not an impossible dream.

---------------------------------------------------------------------------------

Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his blog garethsworld.com and is reprinted here with permission.

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39 Comments

I dont like this idea of

I dont like this idea of taxing my occupation of my own home  just because we went without in the past to pay down the mortgage

Why is Gareth claiming the

Why is Gareth claiming the RBNZ is independent....that's like claiming the Pope is a Protestant.

Wheeler has been surprisingly

Wheeler has been surprisingly very good. He started off making shool kid comments about property prices and interest rates but have since matured very quickly. Don Brash and Allan Bollard made a real hash of their jobs. They created a OCR reliance that was non existent. It is not the RBNZ job to take a high profile. Our businesses cannot be checking what the RBNZ is going to do with interest rates  every couple of months before making any business decisions.
The key is stable financial environment and stable banks, stable and predictable interest rates. Can't have our single largest cost going sky high one minute and dropping like a stone the next.

The issue here is not really

The issue here is not really about whether we should have a capital gains tax or not; it is about whether that decision should be taken by politicians or tax experts.  It focuses therefore on the tension between two different sources of authority-legitimisation - through democracy, or through technical expertise.   The same arguments might apply in many areas where Government makes decisions.
 
The unfortunate fact is that technical expertise is often not compatible with political skill - the qualities that get politicians elected to positions of power aren't the same as those that are required to use that power in the most technically rational way. 
 
That is actually one advantage of MMP; it has the potential to enable a political party to get scientific, legal, medical, environmental, economic etc.  experts into Government without them having directly to sell themselves to the electorate.  It could perhaps be better used for that purpose.
 
It's also an advantage of having a second chamber in Parliament, one that is either not popularly elected at all or on a much longer electoral cycle.  That probably wouldn't be very attractive to those who hate and despise all "pollies" - unless, of course, they get to be in it themselves!
 
 

No taxation without

No taxation without representation for me, thanks.  How long do you reckon Greenspan or Bernake would have lasted if they faced election by the people - or Brash or Bollard for that matter?
 
No, the only way to solve inequality in wealth distribution is through the ballot box to my mind.
 
I mean look at the expert tax working group set up a year or so ago - did they recommend the kind of changes needed to get us where we need to go?  No. 
 
Gareth, the Big Kahuna is still the best proposal in town - it needs to be refined and it needs a political platform. 

I agree with Kate....    and

I agree with Kate....    and I do question the term ..."expert".....
There are far too many ..."experts"... that are imprisioned my their own field of dogma ... and struggle to see the context..
I also like some of the ideas of the big "kahuna"...
I suspect NZ is headed towards its' own version of a "balance sheet recession". (deleveraging). at some point in the future...  ( another credit binge first ...thou)
Having something like the "Big Kahuna"...would be a wonderful policy tool......    as compared to the inane liquidity providing of Central Banks... that do nothing but entrench the status quo...and even end up resulting in "zombie banks...zombie institutions...

Kate provides a good example

Kate provides a good example of the difference of responsibility between politicians and expert advisers. 
 
The assumption that the purpose of taxation is wealth redistribution is a political call which ought to be put to voters for their approval, or not.  If voters agree and so give a democratic mandate to a political party advocating wealth redistribution through taxation, it then becomes the job of Government technical experts to develop and implement a tax system most likely to redistribute wealth.  
 
Put in other terms:  the likely impact of any given approach to taxation, is a question for experts.  Whether that impact is socially desirable, is a question for politicians. 
 
 

Does Gareth propose a

Does Gareth propose a PROGRESSIVE asset tax, so say wealthy people such as him may pay 20% of their net wealth per annum, reducing to 1-2% for normal people?
And how will the tax man know if I have "assets"(which can be hard to define) overseas, in PNG or Moldova etc.....

Is an expert somebody who

Is an expert somebody who agrees with Gareth?  Or somebody who agrees witn me?  After careful consideration I've decided it's .................

now which of the big 4

now which of the big 4  accountancing firms is Gareth touting for? 
 
http://m.youtube.com/?reload=2&rdm=mp0bub10#/watch?v=d4o13isDdfY

Helloooo, unelected elite. 

Helloooo, unelected elite.  Motto 'We Know Best'.
 
Byeeee, democracy (for all its idiocies, Winnies, baubles and foibles).. Motto 'We, the People'......
 
GM, I'm beginning to realise, has more than a whiff of a Messiah complex?

and our elected elite know

and our elected elite know better? should be pretty clear from the mess we are in, they do not.
Now if the elected set policy for a transparent body to work to aka RB to kee inflation at 1~3% then that is measurable and questionable when its outside that range.  This way pollies cannot interfer day to day to get themselves re-elected to the detriment of NZ.
I find it quite interesting that  people with more extreme left and right views seem to share a common ideal, not let the control of what they should not control get away from them.
regards
 

and our elected elite know

and our elected elite know better?
 
Demand a better class of politician for those you apparently think don't know better. We have what the majority thinks meets their needs, it's called democracy - what do you propose to replace it with?
 
Political ineptitude is a pre-cursor for necessary change.

Thoroughly agree with that

Thoroughly agree with that Steven, but I am interested to know how you reconcile it with your often strongly-stated opposition to libertarianism, which seeks to restrict the authority of Government so that all it can do is prevent people (and itself) from doing damage to other people and other people's property without those other people's agreement.
 
You state above that you don't believe elected politicians know what's good for individuals; in opposing libertarianism you state that you don't believe individuals know what's best for themselves. 
 
Is it your position then that there is some group of experts who do know what's best for other people and who could be trusted with the power to make individuals behave accordingly?  How would you propose to identify and appoint them?  What powers should they have?
 
In historic times and other cultures that role has been played by hereditary monarchies and/or organised religion (and what a great job they made of it).  In today's society we have non-Governmental organisations such as Greenpeace and Greypower keen to influence other people's behaviour and spend other people's money.  They're accountable only to their own self-selected members who by definition share their particular outlook; I think it's a good thing that they can only impose their point of view on others by seeking to influence elected politicians who have to take other points of view into account as well.

There are many people who

There are many people who think that the 1989 Reserve Bank Act was a big mistake.  Just because other countries copied the idea doesn't make it right..  What taxation we have or don't have is a political decision and as such should be decided by the politicians we elect.  They get their advice from "experts".  At least there is an element of transparency with the current situation but there would be none if we had an unelected independent body who could control the country behind the veil of being an "expert.   Their ideology would be hidden behind that veil as the Reserve Bank Governor's is now.

plus one

plus one

The problem is, Pollies, pure

The problem is, Pollies, pure and simple can kicking problems they would rather avoid. 
Look at,
a) JK's "insistance" that the fixes the RB wants to do must not effect first home buyers.  \Yet the first home buyers are the main problem...slow those down and the market slows.  So really on this piece of evidence alone I'd not want Pollies doing it.
b) HC's and Cullen's ignoring of the RB's warning of an over-heating market, simply dismissed/ignored.
There is nothing stopping such a body publishing its work and being scrutinised by slect commitees as happens with the US Fed today.
PS 1989 and many? What I do see is a mostly left wing biased group who want to go to voodoo economics and in effect print like mad, which we have already seen has failed.
PS By voodoo I mean something they imagine would work and not actually routed in reality...or any actual robust school of economics....and no matter how many times you shoot holes in it, it just gets back up and keeps walking around......
regards
 

Gareth you are wrong that

Gareth you are wrong that taxes are the cause of our housing crisis
The Real Cause Of The Housing Crisis

Over a hundred years ago, a builder used a hammer and nails to make a timber framed wall. Today, a builder uses a nail gun to make a timber framed wall. That's big progress in the building industry. Imagine if other industries progressed at the same pace. We would still have Blacksmiths, but they would be using modern tools and a bigger range of metals to work with. As bad as this is, it is not the crisis in housing.

For over one hundred and fifty years in New Zealand, and hundreds of years in the rest of the world, people have been building houses. You would expect, with all this experience, housing today would be a ho-hum affair. People taking for granted that new homes are becoming ever more cheaper, while at the same time improving year on year. That's what one could reasonable expect. It happens with other products so why hasn't it happened with houses?

A house, just like any other product, is a product of the market. Yet these other products don't have the same problems. Why is that?

For starters, imagine if other products had to go through the same hurdles as houses. Just think, if Toyota, or Ford, or any other car manufacturer, had to present their drawings and specifications to a Road Transport Safety Authority for approval to build a new car. Imagine the RSTA charging hundreds of thousands of dollars and months of delays while they checked the specifications from all car manufacturers. Will this vehicle meet the emissions standards, can the braking system stop the car in the required distance and so on. In the mean time car manufacturers production lines are held up waiting for approval.

Think of Fisher & Pykel having to get approval from the Energy Efficiency and Water Management Authority to produce a new washing machine. The Authority has to check that the new proposed machine meets the energy Star rating, and that the Grey water waste does not exceed standard, etc.,etc. In the meantime F&P production lines are held up waiting for approval, plus it costs thousands of dollars for the approval.

Can you imagine any other product having to meet the same Bureaucracy as the housing market? We can see that such regulations for cars and washing machines are ridiculous so why is it acceptable for housing?

If a fault is found with a car, or other product, there is a product recall. If there is a fault with a house, such as a leaky home, everyone disowns it.

Having established that the problem is the Bureaucracy, what can be done about it? Clearly you cannot just step back and leave it to the market. You would have cowboys and shanty towns everywhere and end up with a bigger problem.

My solution is to follow what other successful businesses are doing, such as the car industry.

The government should set up three building manufacturers (SOE's) in partnership with the private sector. Ultimately they would be completely taken over by the private sector. One factory for Auckland, a second for the rest of the North Island and one for the South Island. There are three factories, which will eventually compete with each other, and avoid a Monopoly or Duopoly.

The government will pass a law stating that only these three companies are permitted to build either a new home or a home extension. Each company will be responsible for the complete build of a home, from design to handing over the key to the owner. As there will be no Council involvement these companies will be responsible for complying with any government regulation.

Toyota, Ford, and others, are responsible for making sure their cars meet government regulations on emissions and so forth. These building companies can work in a similar manner.
 

No we have not established

No we have not established the problem is Bureaucracy, all we have established is you have a libertarian outlook that 99.99% of NZers dont agree with (libertarians got 1100 votes last election).
"Just think, if Toyota, or Ford, or any other car manufacturer, had to present their drawings and specifications to a Road Transport Safety Authority for approval to build a new car. Imagine the RSTA charging hundreds of thousands of dollars and months of delays while they checked the specifications from all car manufacturers. Will this vehicle meet the emissions standards, can the braking system stop the car in the required distance and so on. In the mean time car manufacturers production lines are held up waiting for approval."
Pretty sure thats exactly what happens, or the NZ agency accepts things like EU crash test reports.  For instance import a car into NZ they take the door panels off to make sure the model is built to a std, if it isnt it cant be road registered, or would need welding up with an engineer's report.
For F&P though its not compulsory, they can make and sell a washing machine without the energy star rating. In which case consumers could buy or not...I'd walk away of it didnt have a good rating and especially if it had no rating....
Have a look at say taps in Bunnings, I think you'll see energy rated rated taps and un-rated taps that are cheaper..   You could go for first cost and buy the cheapest, Im sure builders do, but really thats a total cost of ownership failure you as the consumer accept ie it will cost more to run, or in my case dont.
Really your entire post looks muddled and untrue....
Small builders, working with adequate regulation and adequate inspection did a find job until the regulations were relaxed at the insistance of the "professionals" and the building industry suppliers.   Both promised to provide cheaper and better housing for the Pollies....Pollies happliy signed off.  It went to custard and everyone pointed at everyone else....it was really because of lack of adequate regualtion that we see leaky homes.
 
regards
 

I don't think much of Chris'

I don't think much of Chris' analysis and prescription either Steven, but dismissing it on the grounds that it's "libertarian" says more about you than it does about Chris' thoughts - namely, that you have absolutely no idea what libertarianism actually is.

Whenever a poster keeps

Whenever a poster keeps coming back to its the regulation/beauacrtic brigade without any justification, then yes I think its quite justified in pointing out the opinion is pretty "libertarian" in nature. If you read what I wrote I didnt simply dismiss but raised a whole lot of reasons why I did so...and in fact I think there is enough evidence that without adequate regulation there are casulties....of course buyer beware also applies, so I odnt have a huge sympathy for leaky home owners.
regards

Gareth Morgan needs to

Gareth Morgan needs to realise that this is only his opinion. Politicians are elected to represent the opintions (majority) of the country. It may not be a perfect system, but it certainly is better than the alternatives. Secondly, Gareth, would you also like to tax those of us who have fruit trees or vegetable gardens? We are getting 'free' food? Also, we often buy our clothes, rather than renting them, so should they be taxed also. What about private cars? Get a life.

The problem is to get elected

The problem is to get elected the pollies promise things short term that damage the country medium and longer term. By getting a policy and targets put in place transparently so they can be monitored we take the pork barrel politics interference out of that day to day decision/control.
Frankly having watched Pollies for 30~40 year pander to the biggest minority of the moment I really think we should look for something better.
regards
 

Socrates said that also,

Socrates said that also, which is why men from 'lower caste' jobs, women, peole of colour and slaves couldn't vote for so long. He said that it was not about majority, but people who 'knew best' making decisions. What happened to the Greeks?

What a silly comment on the

What a silly comment on the Greeks, All civilisations come and go. Indeed to try and say that the Greek Civilisation failed because only the best could vote is farcical...
Whats happened to us in the last 30 years? look around you at the vote buying going on.  Look around you at the corruption of this the second gilded age. Youa re deluded if you think those in a lower cast have any effective say today.
In terms of success of a policy determined by an electred Govn but implimented by Mandarins, take a look at the RB mandate to control inflation in the 1 to 3% band.   Politicians set a policy for the RB too meet, The policies set the goal posts, the RB meets that using the tool(s) the Pollies give them.  Now we as voters could vote in Politicians who say set that policy to 1 to 2% or 5 to 7%...we can then see that work, or not.
regards
 

We are sharing opinions, so

We are sharing opinions, so 'silly' and 'deluded' are a little harsh. I just believe that it would be nearly impossible to form a group that would be immune from some degree of curruption, government or otherwise. We do the bext we can - and we live in a democracy where law is handled by the government. They form teams of experts when they do need advice, but NOVOPAY is one example of an 'independent' group of 'experts' managing an area the government handed over. We shoud work with what we have, to improve it, rather than replace it with another (tax payer funded) system than may be just as imperfect.

We should also be sharing

We should also be sharing facts that the opinions are based on. Having an opinion not based on facts is pretty invalid IMHO.
Novopay was actually handled within the education department's project teams I believe....?  hence Im not so sure on experts in this case, or the context....
In terms of improve, well what you see around you (global economic mess)  is 30 years that has cumulated in a disaster that looks worse than the Great Depression from where I sit, hence tweaking at the edges a little just isnt valid.   Though I also dont imply huge changes...the Rb with its model of a policy with a target has arguably worked pretty well for 30 years compared to many other countries. Hence forming a policy of experts who work to targets that we can all watch over seems to work relatively well.  Certainly compared to letting pollies who are in for 3 years is short term. What happens in that last year? They only want to worry about geting in again in the last year and will give you anything they can to get your vote.  A long term policy framework like the RB however doesnt care about such artifical horizons.
regards

"Get a life." are your own

"Get a life." are your own harsh words at GM, simple, if you cant stand the heat dont go in the kitchen.
regards

Frankly having watched

Frankly having watched Pollies for 30~40 year pander to the biggest minority of the moment I really think we should look for something better.
 
And experts do what? - get captured by the rich and powerful - ahh that was me - paid for  retirement at 45 as long as I manipulated the US bond market with a little help from other experts at the US Federal Reserve. No thank you.

Oh I agree its open to abuse,

Oh I agree its open to abuse, hence a transparent system.  I mean has the NZRB been captured? on inflation? I guess you could try and claim so, personally no I dont agree, not substantially anyway.
regards
 

You will no doubt gladly

You will no doubt gladly expose the transparency I have doubts about when you rise to my challenge here.
 
Yep, securitising the repayment cash flow on borrowed money to buy things we think we need is not a secure platform upon which to plan a life. And yet we have our home grown version in the form of covered bonds just waiting to execute carnage. Title to property will pass to another when, as you imply, the system implodes - checked your mortgage lender to demand if your mortgage is part of the covered bond pool, thus exposing your house and land to an unfortunate and certainly unwanted change of ownership? - have you made provision for such outcomes?  It's only the best mortgages that are chosen with about 50% or less owing
 
I believe we still await the corroborating legislation that extends legitimacy to the RBNZ's approval of covered bond issuance. But I am hoping to be proved wrong. 

Lets look at the italics bit,

Lets look at the italics bit, what pray is different between someone with say 10% residual mortgage being transferred to an unknown party (say A) and someone with 90% being transfered to party A or say  B?
 
In both cases the end party is not controlled by the mortgagee, thats determined by the court/receiver. In my case on 10% and 90% equity I should have no real issue going out into the market and moving my mortgage to another lender if party A or the receiver wants to be a funny asshole....The 90% debt holder however is probably well done over....So for me I hold no additioanl fear over being in the covered bonds pool v not....In fact since the orignal investor is probably another bank and not the loan shark the 90%er is now with, it might be a good thing.
 
Lets get past this, you seem to fear greatly, that now your savings are under a greater risk of loss than they were....petrified even.....past logic....
 
In fact for me, Im seeing that this better with wide open eyes.  The bank is clearly telling you or reminding you that your money is at risk. That means really that your eyes are now wide open and you will be more careful....
 
Also look at Internet banking, you can move sums in hours if you think the ANZ say is about to go toes up....the covered bond holders can run fast? no I dont hink so....
regards

I don't believe the mortgage

I don't believe the mortgage is the issue - the final recourse covered bond collateral is the title to the properties in the pool - in the first instance covered bonds holders have recourse to the insolvent banks' general liquid assets, thereafter to the title deeds of  the mortgaged property - promises to pay in the form of a mortgage are generally not worth the paper they are printed on when insolvency strikes.
 
My panic, as you say, in respect of my deposits at banks rises in proportion to the regulator's need to impose post solvency capital transfer schemes - ie OBR. If all is cute why bother and fail to advertise the plan to an uninformed public - if your are not doing something wrong, why would you want to hide the fact. 
 
And let's not be cavalier - when the London bank that employed me and others acted in concert to bring down Continental Illinios National Bank & Trust  there was palpable panic in the dealing room until our deposits had been secured and placed elsewhere. It was all over before the retail depositors were informed. 
 
the covered bond holders can run fast? no I dont hink so....
 
They have absolutely no need to run anywhere, the authorities have enshrined their rights in planned legislation. Read here and here

Im still having difficulty in

Im still having difficulty in understanding your concern, or the depth of it anyway. 
If its so bad why dont you move your money elsewhere now? you are free to are you not?
In terms of the OBR for me its quite simple, our RB has put in or will put in place (its in?) a system that allows ppl and companies to still trade in the event of a severe event like Lehman...at least thats how I see it.  So I will still get paid so I can go to pak-n-save and buy food. Pak-n-save in term can pay wages and buy food wholesale....
Would/does that sound a fair description of its main purpose?
The covered bond is a max of 10%?  So that is covered off by a pool of mortgages up to that value?  (and gets topped up as needed?)
In the event of an event that 10% gets paid out in full while the rest take a heavier loss?
So say there is a 30% haircut....that 10% still gets all of its10%?
So that means the remaining 90% of us take an extra 3% spread over all of us?
"Continental Illinios National Bank & Trust  there was palpable panic in the dealing room until our deposits had been secured and placed elsewhere"
but these are deposits, and almost liquid, the above bonds are far less liquid?  ie you or a bank can withdraw a deposit immediately...while the bond holder is stuck to the term, (or sells the bond to someone else?).
So say there are some days or even weeks notice for switched on ppl, us depositors...so we over say 5 days move the money out so the bank run empties that 90% of liquid deposits, leaving the 10% covered bond....is that not possible?
Why pray when you appear to be an ex-banker dont you have confidence that you would be ahead of say me? 
regards
 
 

It will all be over, before

It will all be over, before you get a whiff of anything.
 

Late in the day, but as I've

Late in the day, but as I've written in my blog this morning:
 

... I also note this week Gareth Morgan writing of the need for an independent tax setting body to take tax decisions out of the politicians hands – he now sees this as the only way of taxing housing, property, business equity (I seem to remember), that is, capital. Sorry, Gareth, as bad as these politicians are, it’s called representative democracy. I am worse off with a technocrat setting tax policy – and let’s take it for granted I’m not going to agree with your technocrats – than a politician, because at least I have this tiny, incey wincey possibility of helping to vote a politician out of office, whereas I will have no control or voice, whatsoever, in the role, decisions or careers of permanently established Humphrey Appleby technocrats. Technocrats will be as open to self-interest as politicians are, but will be utterly beyond my reach. Worse, this then truly does institutionalise the notion of taxation in our society, and freedom lovers like myself, libertarians, the very odd librarian, classical liberals, are implacably opposed to that. We’ve all forgotten how much of our taxation, certainly income tax, is a very recent concept, and the only revolution that has had lasting good, that American one, was rightly set off by the imposition of taxes at minute levels our current parliaments pass annually without comment, even through excises (forget the really big taxes).

 

We need a conversation about tax, alright, but that conversation starts in philosophy, and the role of government in our lives, and whether the West is about freedom, or this surveillance state we find ourselves in.

By  voting we have that

By  voting we have that discusion...by having all of 1000 votes its pretty clear libertarian point isnt terribly "interesting" to most ppl, ie they dont want it.
regards

You do realise you repeat

You do realise you repeat that trite nonsense everytime I post. It's boring, and irrelevant.
 
Do you want NZ run by unelected technocrats ... that's the only issue of consequence in my post.  (Grow up steven).

Seriously, this is

Seriously, this is farcical

Over the last 3 years there has been discussion after discussion, Gareth Morgan goes out for a quick trip on his harley davidson, gets back home, his head bursting with bright ideas on how to do it better, and better, and even better still, and yet from seperate sources we keep reading stories about the IRD which seem to indicate they are too busy chasing Fred Flinstone down the local quarry because they suspect he is dealing in un-taxed rubble.
 
They can't even administer and operate the system they've got now
 
Here the IRD computer system crashes - people cant file their tax returns
http://www.nbr.co.nz/article/irds-online-filing-system-crashed-gb-142167
We've noticed in our CA office that it has been "unavailable" for days at a time since the beginning of June, when the first GST returns for the May period would have been being filed. I think this move to force everyone online is ill-conceived when their system clearly can't cope with the additional pressure.
 
And from a post from "bob" over on the insterest.co.nz poll about property investors
The IRD has to go on bended knee to Real Estate agents to "discover" and obtain information about property transactions
http://www.stuff.co.nz/sunday-star-times/latest-edition/750731/Property-...
How out-of-touch and un-intelligent is that? It's incredibly stupid. They're not serious.