News and Opinion, sponsored by RaboPlus

The eleven month accounts published today by the Treasury show that its financial situation improved somewhat in May.

The total Crown operating balance improved from a deficit of almost $7.7 billion in April to under $7.2 billion in May, an improvement of more than $0.5 billion for the year.

OBEGAL, the operating balance excluding portfolio gains and losses, improved even more – from a deficit of $1.8 billion to $1.2 billion at the end of May.
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Bernard Hickey details the key news overnight in 90 seconds at 9am in association with ASB, including the New Zealand dollar’s rise to 65 USc as the US dollar weakened, GM’s bankruptcy, stronger Chinese manufacturing output and Gareth Morgan’s call for the closure of the Cullen fund. (more…)

Bernard Hickey details the key news over the weekend in 90 seconds at 9am in association with ASB, including news from Australia that Securency, which prints our money, is under investigation for alleged corruption, while the Sunday Star Times reports the NZ Super Fund is considering underwriting a NZ$1 billion luxury holiday home and hotel project in Queenstown.

By Neville Bennett

The introduction in the UK of a 50% income tax should not be copied here. In New Zealand prosperity is very dependent upon internationally mobile people, companies and capital, so any extremely progressive income tax is foolish. Moreover, about half the population does not pay net income tax, so the tax system could have flatter, lower taxes.

Taxation is a very powerful tool for reshaping society. It works through incentives and disincentives. A useful start would be Treasury’s own idea of moving taxation away from internationally mobile bases like income and profits towards immobile bases like land, rent and consumption. This rewards the enterprising, and makes ticket-clippers share their good fortune.

A second theme is the necessity for a capital gains tax (CGT) on assets other than the family home (conditions apply). Originally part of the great reform package of the 1980’s, governments have shied away from CGT, leaving New Zealand as one of the few OECD countries without it. This distorts investment and its lack drove the recent housing bubble because gains were virtually tax-free.

Another general rule of taxation is to tax “bad things” to discourage them. Thus we have a tax on tobacco. Moreover, a tax system should aim at sustainability by taxing pollution. I would like to see progress towards taxes on carbon release and water pollution.

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By Roger J Kerr

In the clichéd rugby vernacular, it appears to be “a game of two halves” for the Kiwi dollar currency movements over the next 12 months. While having made impressive gains to 0.5900 from the low 0.5000’s over recent weeks there are a number of short-term forces and events that suggest the NZD/USD exchange rate will not sustain its gains and return to the low 0.5000’s.

However in the medium term to longer term (the latter part of 2009 and into 2010) against a back-drop of an improving New Zealand economy and potentially local interest rates increasing ahead in timing of other countries, the Kiwi has a far higher probability to be appreciating above 0.6000.

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The affordability of the latest round of tax cuts, initially announced during National’s election campaign in October, is under further scrutiny following the release of Government financial figures by Treasury that show a large gap between Government’s operating balance and Treasury’s pre-Christmas forecast.

(Update 1 to include comments from Finance Minister Bill English.)

Corporate taxes, GST receipts and withholding tax on interest payments were lower than expected because of the longer and deeper than forecast recession and lower term deposit rates.

This will concern Standard and Poor’s, which announced it was reviewing New Zealand’s AA+ credit rating after seeing the shock pre-Christmas numbers. S&P is worried New Zealand will be running big ‘twin deficits’, with both the public sector and the private sector borrowing heavily at the same time.

The operating balance before gains and losses (OBEGAL) in the financial year to the end of February 2009 was NZ$49 million, down 97% from the pre-election update forecast and NZ$1.2 billion worse than expected in Treasury’s pre-Christmas update.

However, NZ$494 million of the shortfall was because February’s tax due date was moved to March 2 as the last day of February fell on a weekend. This means the budget deficit is already running about NZ$700 million behind where it was forecast to be before Christmas. There are still 3 months left in the financial year. Treasury said this February timing difference would reverse out in March.

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