News and Opinion, sponsored by RaboPlus

By Adolf Stroombergen from Infometrics

Many people do not support an increase in GST, or so the polls tell us. I recall the same popular sentiment in 1986 when GST was first introduced. At that time there was a natural fear about a type of tax that was unfamiliar to most New Zealanders. Would it work? Would politicians deliver the accompanying income tax cuts? Who would gain and who would lose? Would government be bigger or smaller? Perhaps these fears still exist even though the change being talked about this time is much less dramatic.

The policy options currently on the table involve a change in the tax mix that deliver the same amount of revenue to the government. Whether the total tax take is too high or too low – whether government is too big or too small – is a different issue. The aim of the current proposals for tax reform is to find a better way to collect the same amount of tax revenue. What is meant by a better way? One that is more conducive to economic growth, fairer to those who can least afford to pay, easier to understand, more difficult to avoid and cheaper to comply with and administer.

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By Bernard Hickey

New Zealanders don’t know how lucky we are that our economy is joined at the hip to the lucky country. Also luckily for us, our creditors aren’t too worried about just how lucky we are rather than how virtuous we are. They’re just going to lend us the NZ$240 million a week we’re asking for without asking too many questions and just assume we’re a suburb of Australia, which is a province of China.

It’s worth pointing out our luck again after the last week’s news from Australia, which appears to powering a new confidence (or complacency) at the top of New Zealand’s policy making tree.

Listening to Reserve Bank Governor Alan Bollard and Finance Bill English in recent weeks has been like listening to someone explain how they got away with the economic policy makers’ version of selling a slightly dodgy old campervan to a foreign tourist for more than it was worth. They hope the tourist will get around the South Island without any trouble, but they’re not absolutely sure the head gasket won’t blow somewhere on Arthur’s Pass.

Bill English talked this week about having to convince 28 year old bond traders in New York to buy our government bonds. All they wanted to know, he said, was how closely connected to Australia we were.

“All I have to tell them is we’re hooked in to Australia, which is hooked into China,” English told a business audience in Auckland with a wry and almost embarrased smile. Bollard has also pointed to the same foreign investor confidence, saying our connections to China via Australia are positive for our image on international markets.

O so lucky

Let’s look first at just how lucky the lucky country has become.

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By Rodney Dickens

Housing affordability can be a complicated issue. It addresses four questions. Does NZ have a housing affordability problem? Does it matter? What caused the problem? And, most importantly, what are the solutions?

To provide answers to these questions this Raving draws extensively on the quality work done by Christchurch-based Hugh Pavletich and US-based Wendell Cox, authors of the annual Demographia International Housing Affordability Survey. Input from Owen McShane, Director of the Centre for Resource Management Studies needs acknowledging because he has also helped me understand the problem of housing affordability, the causes and the solutions. To some landowners and councils Hugh and Owen will be seen as the enemy because of their relentless campaigning for affordable residential section prices, but their tireless efforts may finally be rewarded. The Key Government has set up advisory panels to address the root causes of the affordability problem.

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by Mike Jones

The NZD ended last week on a firmer note. In fact, NZD/USD was the strongest performing currency on Friday night, meaning NZD/USD closed out the week around 0.7000.

Not only did NZD/USD benefit from month-end USD selling on Friday, but risk appetite received a boost from speculation a bail-out package for Greece is close to being announced. Indeed, media reports suggested a consortium of European countries will buy €5-7b of Greek bonds. European equities soared 1.5-2% and our risk appetite index (which has a scale of 0-100%) rose to a 1-month high of 62%. As a consequence, ‘risk-sensitive’ currencies like the NZD outperformed on Friday night.

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By Mike Jones

The NZD/USD has spent the last 24 hours consolidating within a 0.6870-0.6950 range.

Overnight, a softer USD provided a base for small recovery in the NZD/USD. Fed chairman Bernanke was in focus as he offered a relatively downbeat assessment of the US economy to Congress. Bernanke also rammed home the idea that Fed policy tightening is still not on the cards, despite the increase in the Fed’s discount rate last week. January’s 11.2%m/m slump in new home sales (to the lowest level since records began) simply reinforced the fragile state of the US economy, and US interest rates fell across the board.

The prospect of lower US rates for longer saw equity markets post modest gains and commodity prices rise. The S&P500 is currently up around 0.9% while the CRB index (a broad measure of global commodity prices) lifted 0.7%.

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By Infometrics economist Chris Worthington

One of the grimmer aspects of the holiday season is the prominent focus given to the holiday road toll. Although it will be small comfort to the friends and relatives of those who died on the roads this summer, 2009’s holiday road toll of 13 was a substantial improvement on the 25 who died in 2008. After adjusting for the number of vehicles on the road, 2009 would be the third lowest holiday road-toll since records began in 1958.

There is often a temptation to divine an explanation for the year-to-year swings in the holiday road toll (or the yearly road toll). The reality is that over such a small sample period (the holiday period is normally 11.6 days), the normal variation inherent in such figures swamps any ability to attribute changes to causes like public safety campaigns or changes in police visibility. We just can’t say that the drop from 25 to 13 reflects any underlying change in behavior.

The good news is that over a longer time period, there is a remarkably clear and significant downward trend in the overall road toll. The raw road toll statistics need to be adjusted for the increasing number of drivers on the road. Ideally this adjustment would take into account the actual number of kilometers driven, or time spent in cars, but lacking that data the common adjustment is to compare road accidents to the number of vehicles in New Zealand.

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