Breakfast briefing: A new type of economic slowdown?

Economy / news

US PMI expansion turns modest; US junk bond downgrades rise; Japan PMI shows good expansion; Taiwanese data mixed; Aussie PMIs softer; UST 10yr 3.86%; gold down and oil up; NZ$1 = 62 USc; TWI-5 = 69.8

25th Jul 23, 7:19am by David Chaston

Here's our summary of key economic events overnight that affect New Zealand, with news the global economic slowdown is coming but it might not be like every other slowdown.

There is more evidence that the giant American economy isn't expanding as fast as previously. First, the National Activity Index released by the Chicago Fed delivered a weakish result for June when it saw "little economic growth".

And the internationally-benchmarked Markit flash PMI for the US reported a more modest expansion in July. Their service sector is still in a modest expansion, and the factory sector's contraction is now only very minor, which is an improvement for manufacturing but a slowdown for the service sector.

However a strong majority of business economists now say the odds of the US entering a recession in the next 12 months are 50% or less, according to a new survey that was taken in the first half of this month.

How does all this square with the steep inversions in bond yields? More professional economists are explaining that the yield curve actually signals the slowdown in inflation that typically accompanies a recession, but not the actual recession itself. Without a weak labour market they may not actually get the 'usual recession'.

It still may come of course. One indicator is that there has been a flurry of junk-bond credit rating downgrades recently. They reached a three year high of 120 in the June quarter (since the pandemic). Risky debt is getting riskier and it is a US$1.4 tln market overall.

In Japan, their Markit PMI recorded a good expansion. Activity at Japanese private sector firms increased for the seventh successive month. Key was a sustained and solid improvement at Japanese service providers, while manufacturers noted a slightly softer downturn at the start of the third quarter and the survey found that new order growth slowed rather sharply.

Singapore's CPI inflation fell from 5.1% in May from a year ago to 4.5% in June. But the May to June rate was uncomfortably high for them.

Taiwanese retail sales continue to hold up strongly, expanding far faster than inflation. But the same is not the case for their industrial production which remains on a sharply shrinking track.

In Europe, their flash PMI signaled a steeper downturn and cooling price pressures at start of the third quarter. They have slipped back to where they were a year ago. France reported an especially steep downturn, and Germany slipped into a contraction in the month.

In Australia, business activity in their private sector fell for the first time in four months during July according to the Markit PMI. This retreat was due to a renewed contraction in their service sector as interest rate rises hit customer confidence and budgets. More positively, manufacturing output ticked higher and actually recorded only a tiny contraction.

The UST 10yr yield will start today at 3.86% and up +2 bps from this time yesterday. Their key 2-10 yield curve inversion is marginally deeper at -105 bps. Their 1-5 curve is still at -125 bps. And their 3 mth-10yr curve is little-changed at -152 bps. The Australian 10 year bond yield is now at 3.98% and down -3 bps from yesterday. The China 10 year bond rate unchanged at 2.66%. The NZ Government 10 year bond rate is down -2 bps from yesterday to 4.65%.

On Wall Street, the S&P500 has opened its Monday trade with a +0.4% gain. Overnight, European markets were mixed between -0.1% and +0.1% changes. Yesterday Tokyo ended up a strong +1.2%. But Hong Kong fell a very sharp -2.1% in Monday trade. Shanghai ended down only -0.1% however. The ASX200 ended its Monday session also down a similar -0.1%. But the NZX50 rose a good +0.7% on the day.

The price of gold will start today at US$1959/oz and down a mere -US$2 from yesterday.

And oil prices are up +US$1.50 at just over US$78.50/bbl in the US. The international Brent price is now at US$82.50/bbl.

The Kiwi dollar starts today up +¼c at just on 62 USc. Against the Aussie we are slightly firmer at 91.9 AUc. Against the euro we are up +½c at 56 euro cents. That all means the TWI-5 has risen to 69.8 and is up +30 bps from this time yesterday.

The bitcoin price has fallen a lot since this time yesterday. It is down -3.5% and now is at US$29,046. Volatility over the past 24 hours has been moderate at just over +/- 2.5%.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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86 Comments

by Pa1nter | 25th Jul 23, 7:29am 1690226988

with news the global economic slowdown is coming but it might not be like every other slowdown.

Did every other slowdown behave the same as each other up till now, and how many other recessions were deliberately engineered?

by Averageman | 25th Jul 23, 7:43am 1690227806

Bubble inflation and deflation engineered....would not be surprised. Makes a game of it, v.s. a lazy one way bet. Aka when to leverage, and when to deleverage.

Stable work is important. Being a construction worker or supplier v.s. being a divorce lawyer or liquidator during the GFC was quite a different experience for example.

by Pa1nter | 25th Jul 23, 8:07am 1690229233

Quick sparkies, you've got 6 months to pass the bar exam!

by Averageman | 25th Jul 23, 8:39am 1690231179

If the GFC was anything to go by, the older one retired to their holiday houses, and the qualified younger ones without lock-in to NZ (large mortgage, kids in school etc) went to Aussie most never to return. A trend across the trades.

by Pa1nter | 25th Jul 23, 9:58am 1690235902

People often move when their incomes dry up, sure.

The biggest issue is that we just didn't bring enough trades through, for 20-30 years. Big push for kids to go to Uni and join the knowledge economy.

by tomjones_04 | 25th Jul 23, 7:56am 1690228587

I was listening to the pro property crowd in the adverts on ZB this morning. The bottom is in etc. Why is no one talking about the most fundamental investment point that's going to keep the market down? The yield curve! It's crap. They talk around the edges about supply and immigration. It's just noise. The investment does not stack up. Full stop. Prices will continue to drop. End of story.

by Pa1nter | 25th Jul 23, 8:01am 1690228901

The great thing about markets, is their population is made up of humans.

And humans, often (mostly for some) don't act rationally.

by HouseMouse | 25th Jul 23, 8:28am 1690230487

Agree. However….

People may want to start buying, as the market gets hyped, but perhaps that’s easier said than done, with interest rates as they are (and stress test levels as they are)

Obviously these things don’t apply to cashed up investors. I guess the question is how many of these people are around and active in the market?

by JimboJones | 25th Jul 23, 9:53am 1690235582

Eventually even humans learn when something is a bad investment.

If you are a FHB you are much better off renting. If you are an investor you are much better off putting your money in a term deposit. It may take a few years for everyone to realise that...

by IT GUY | 25th Jul 23, 11:40am 1690242020

Many investors have no actual money to put into the term deposit, it was all equity in their first home...... for many property investment was sold as a leveraged super fund.... They have no choice but to try and stay in, as getting out will financially cripple them, National will reverse interest deductions, they will allow many to hang on even with negitive equity. The crushing blow will be banks moving people to int plus principle once rates drop a bit, meaning that investment property will still not be cash flow positive. Without capital gain there is no point in an investment property at current interest rates and price levels, the current bag holders are now stuck.

by Flying high | 25th Jul 23, 9:58am 1690235922

Prices will continue to drop

High risk of a plummet. 10 sellers to every buyer, 1 or 3 sellers are being realistic but that will change!!

Dirty spruikers are feathering their nests whilst crapping in others nests.

Spell check please dr evil

by JimboJones | 25th Jul 23, 9:50am 1690235447

I agree. I can only see four options to fix the yield:

Rents go up significantly
Interest rates go down significantly
House prices drop significantly
Some combination of above

by Flying high | 25th Jul 23, 10:02am 1690236142

1 happened but not significantly

3 happened

2 happened... hang on a minute.

by JimboJones | 25th Jul 23, 10:14am 1690236897

I meant on top of what has happened. Yields are still terrible.

by OldSkoolEconomics | 25th Jul 23, 2:53pm 1690253584

Well. Inflation is still persistently high with many ongoing pressures. Interest rates more likely to go up at the mo to countet that. High inflation amd weakening economy means people simply dont have more money for rent.

What does that leave i wonder..

by Zwifter | 25th Jul 23, 12:39pm 1690245556

Well its like this, the housing market is not rational end of story. If I learned anything from the start of Covid where I thought house prices would drop 25%, they ended up going up 25% instead, so go figure.

by OldSkoolEconomics | 25th Jul 23, 2:55pm 1690253755

Hell yeah.

But .. when everyone was stuck at home in lockdown with nowt to do Mr Orr and Mr Roberston splashed everyone with cheap (lower interest rates) and free money.. so everyone went shopping... for houses mostly.

Now interest rates are high and money is hard to come by.....

House prices tend to follow interest rates inversely.

by IT GUY | 25th Jul 23, 8:00am 1690228856

NZ house prices have fallen faster then US prices did in the GFC

by Pa1nter | 25th Jul 23, 8:02am 1690228942

They also went up faster than before the GFC.

Easy come, easy go.

by HouseMouse | 25th Jul 23, 8:32am 1690230728

And that ultra-volatility has created lots of risk and vulnerability (although I suspect your point is that it doesn’t matter for people who bought more than 3-4 years ago, but that’s a different matter)

by Pa1nter | 25th Jul 23, 10:14am 1690236847

My point is it's really difficult drawing analogies from covid era economics from other points in time.

Housing aside, for a year or two in the 2020s, you could make money owning a car, even if new. That's really not normal. So, cars being depreciating assets again isn't really indicative of much, other than things are less bananas.

by GV 27 | 25th Jul 23, 8:01am 1690228892

I enjoyed a bit of the back and forth on the TOP Tax proposal and I've been doing some thinking about it overnight.

There's probably not going to be any other realistically broad-enough tax other than a LVT that could raise enough revenue to sufficiently lower income tax brackets across the board.

But there's a huge issue with the application of it when it comes to region-by-region land values. A tiny parcel of land in Auckland would incur more land tax than a huge section in a regional town, even if that tiny sliver land is being used far more efficiently. It seems like it would mean Aucklanders would be far more likely to pay higher taxes as a result than people in other parts of the country, who would be far more likely to receive the benefits of a tax switch.

So my question to TOP supporters becomes: how do you get around this just being a huge drain on the incomes of people who own property in Auckland and a transfer to others around the country, regardless of the actual efficiency of land use? The great leveller of income tax is that a $1 in Te Awamutu is taxed the same as $1 of income in Auckland. But the land tax proposal would seemingly generate a major departure from this principle.

by Pa1nter | 25th Jul 23, 8:11am 1690229491

The bigger issue is the assumption an LVT will be introduced with a commensurate drop in income taxes.

I'm inclined to believe we are currently well under-taxed to deliver existing state services into the future, let alone improve them.

So it's more likely an LVT will just mitigate future income tax increases.

by bw | 25th Jul 23, 8:20am 1690230013

"we are currently well under-taxed to deliver existing state services into the future" Absolutely spot on. Tax is similar to a higher OCR - it restricts discretionary spending and so the assumption of more Private Debt, but instead of going to the finance sector, it goes into the national coffers. And a dead-in-the-water Labour Party needs to present the hard truth to New Zealanders in the name of all of our futures. They are gone anyway. So how about they do something constructive before they go.

by GV 27 | 25th Jul 23, 8:23am 1690230234

I mean after a decade of bracket creep, and the GST take going through the roof thanks to inflation, my response would have to be: really?

Not so much on the question of whether the government collects enough tax to fund services - although I note it seems to have plenty of cash when it wants to dish some out to certain groups to curry favour. But more to the point: Given citizens are also fighting enormous living costs, and the aforementioned lack of indexing, how much more tax can the population realistically bear on top of what they already pay now?

I suspect the 'hard truth' realistically involves accepting that dishing up money to cohorts of voters (winter energy payments on a non-means-tested basis, for example) was financially an idiotic move, and that certain policies and interventions (scrapping of early payment discounts from power companies) have contributed to the cost of living crisis. But it's far easier to just blame voters for not paying enough tax, I guess.

by Advisor | 25th Jul 23, 9:06am 1690232815

I think we need to be better informed with data before making some arguments.

As of 2020, NZ had the lowest tax burden on labour in the developed world (19.1% vs OECD average of 35%; 49% in Germany), despite having one of the highest marginal income tax rates for the average earner. The reason being we're the only country in the OECD that imposes zero payroll taxes on employers and employees (aka social security contributions). Some of this is offset by NZ also not allowing individuals to claim tax deductions on their wages.

The tax burden drops to a measly 5% for a married individual with two children earning the national average wage because of the government welfare transfers offsetting the burden.

by GV 27 | 25th Jul 23, 9:01am 1690232460

That's the problem with population-wide averages - it's not telling who is paying what share of that. If the total average is so low, it must give you some idea of what is being squeezed out of some people to make that number stack up.

by Advisor | 25th Jul 23, 9:49am 1690235345

That's right. IMO the lack of employer payroll tax is subsidising low-value business activity. Businesses hiring workers on low wages are contributing nothing towards social security and the broader tax base is being forced to pick up the shortfall in those wages through government services and transfers.

No surprises that hospitality and tourism are the biggest users of NZ's migration channels and the high influx of low-skilled workers is putting enormous pressure on our government finances instead of paying for retiring boomers.

by Pa1nter | 25th Jul 23, 9:56am 1690235799

The foreigners working in tourism are usually young travellers. You can argue whether they're adding much, but they're generally healthy and transient enough not to consume much, either.

by Advisor | 25th Jul 23, 10:29am 1690237758

As usual, you won't back your claims of all tourism workers being young travellers with actual data. One person behind the till with a foreign accent can't represent the entire sector.

Even pre-Covid we had about 50k-60k people on holiday visas in NZ at any given time and our tourism industry alone employed 230k.

IRD data suggests that more than half of NZ's workers (~1.48 million) earned less than 56k in 2022 and 11.2% of our working-age population were on some "main" benefit (excluding superannuation).

by Pa1nter | 25th Jul 23, 10:32am 1690237945

I didn't say it was the entire sector. But foreign travellers feature fairly heavily in tourism businesses.

by blobbles | 25th Jul 23, 11:41am 1690242067

There's only one party too GV talking about a complete overhaul of the benefit/welfare system, cos its broken. No surprises, but its also TOP, though this policy doesn't appear on their site anymore, its been one of their major drivers. This doesn't have to include UBI, but that would end up being put back on the table if they were elected.

by murray86 | 25th Jul 23, 8:35am 1690230935

I suggest you are too blinkered by a traditional view of taxation. The reality is the government does not have to tax to spend. While a significant risk, any government can fully fund essential services if it chooses to. Any commentary to the contrary is rubbish. I agree with GV in that I enjoyed his discussion too, but ultimately think it is a red herring and a storm in a tea cup.

by GV 27 | 25th Jul 23, 8:41am 1690231290

Agreed, we're not too hung up on the idea of surpluses anymore apparently. I think we've learned our lessons from the 2000s where we sacrificed infrastructure investment for the sake of paying down debt or restructuring the way our taxes were collected. Yes, it worked out for us on some rainy days, but there have been some pretty negative flow-on effects too.

The government can fund things if it really wants to. If there's a huge decline in things like health, education etc then it suggests that priorities are the issue, not the tax take.

by JohnTrz | 25th Jul 23, 8:29am 1690230594

'A tiny parcel of land in Auckland would incur more land tax than a huge section in a regional town, even if that tiny sliver land is being used far more efficiently.'

Such a land value tax might encourage people to move from cities to provinces, reduce the price of land in Auckland, and boost the price of land in the provinces. All of which many might think a good thing.

by GV 27 | 25th Jul 23, 8:38am 1690231130

So the answer is... to drive Aucklanders out of Auckland?

by Averageman | 25th Jul 23, 8:48am 1690231704

Or be productive enough to afford the premium. Think of all the landbanker's, specuvestor's, and foreign capital that hold land in Auckland that will for the first time in ages actually pay some real tax. Oh the humanity. Have a kid attending Canterbury next year. Seriously considering buying in Ilam before the election, and relocating the families electoral votes to that electorate. Land tax for the win.

by GV 27 | 25th Jul 23, 8:58am 1690232336

But it won't just be landbankers, specuvestors and foreign capital holders who are paying a bunch. To give you some idea, I have under 240sqm with a 600K+ LG valuation attached to it. Which - and I agree - is insane. But if your aim is to hit landbankers and specuvestors then you're going to snag a lot of people with a pretty basic home on a small parcel of land and lump them with extra tax that people in other regional centres don't have to pay on far bigger bits of land. 'When all you have is a hammer, everything (and everyone) starts to look like a nail' springs to mind.

I mean like I say, I suspect a LVT is the answer, but I suspect Auckland land values are so beyond out of whack that there's a huge likelihood of inequitable outcomes that haven't really been thought through.

by rastus1 | 25th Jul 23, 8:38am 1690231112

Part of the intention is the tax forces land prices down to a level that the occupier can afford (the asset price x land tax %).

Though i get that if works then the tax take drops from assets. However, perhaps the govt will need less tax as people start to stand on their own two feet eg they can afford a home without a massive mortgage and accom supplements, the farmer can buy land and produce vegies cheaper because the land price relates to vege price. And so on...

by Palmtree08 | 25th Jul 23, 9:11am 1690233071

Produce veg cheaper? The growers already work for nothing. Why don't we discuss other occupations working "cheaper"? Lawyers, accountants, media personalities and all the other non essential hangers on to those producing the most basic human need.

by GV 27 | 25th Jul 23, 9:44am 1690235049

Sorry, I need a high salary to be able to afford vegetables for my family.

by the Joneses | 25th Jul 23, 11:27am 1690241262

What percentage of your income is spent on vegetables?

by Pa1nter | 25th Jul 23, 11:37am 1690241843

Sorry, I need a high salary to be able to afford vegetables for my family.

Some people just use a spade

by IT GUY | 25th Jul 23, 11:45am 1690242306

not if you live in a shitebox with no land... ie 109 sq m

by Pa1nter | 25th Jul 23, 11:53am 1690242797

If you're on a shitebox with no land

Your income isn't high, it's barely adequate for the area you live in.

by rastus1 | 25th Jul 23, 2:30pm 1690252245

cost of land asset as the input. All inputs matter...the largest is land price.

by Palmtree08 | 25th Jul 23, 2:47pm 1690253222

I imagine many of the remaining veg growers are intergenerational. If you were looking to beat off the price city professionals can pay, a veg operation is non viable. Does that mean the most efficient land use is running a pony?

by HGWR | 25th Jul 23, 9:00am 1690232457

The value of the land is proportionate to its yield (or should be, and will be more likely to be under an LVT that discourages speculation).

Aucklanders would justifiably pay more tax because they can either charge proportionately higher rent, or enjoy proportionately greater benefits of residence, such as amenities and job opportunities. The price of land (excluding buildings) is directly tied to these intrinsic advantages that were created either by nature or by society, not by the land owner. That's why a flat rate of tax on those advantages is fair.

by GV 27 | 25th Jul 23, 9:04am 1690232694

But it isn't those things that actually drives land values - it's primarily one of engineered scarcity through land available to development. Until this is uniform across the whole country, a flat rate of tax across the whole country seems to be designed to generate perverse outcomes. There's a bit of a violation of equity by offsetting income taxes (which are collected uniformly regardless of location) with something that isn't.

by redcows1 | 25th Jul 23, 9:25am 1690233944

Violation of equity, hmmm I'll have to think about that.

I'm really finding it hard to follow the thinking that is trying to uphold the prices that are in your words out of whack. Instead of scarcity and capital gain and ability to obtain a loan against the land setting the price we would move to productive potential.

by GV 27 | 25th Jul 23, 9:43am 1690235006

I'm really finding it hard to follow the thinking that is trying to uphold the prices that are in your words out of whack

It's not upholding prices - it's a perverse outcome of how it's proposed to function. How much land could I buy in a regional centre for what I'm going to be taxed for a townhouse on a parcel of land in Auckland? Like if this is really about driving efficient use of land, then that's actually not fulfilling that aim, is it?

I mean if you want to tell me if there's a more productive use of 240sqm of land in an Auckland residential area than the townhouse that's already on it, then I could in theory buy that as an argument, but to individualise the cost when the land is probably as close to being used optimally as it's going to get, that seems like it's not exactly about 'productive potential', especially when far more land with a similarly sized house would let to a net gain for the owners if it was in any other part of the country.

Perhaps there's some sort of multiplier or factorial consideration where residential land can be discounted taking into account the number of people you have living on it? That would at least make some account for actual use of the land. But if we're going to set the bar above townhouses on less than 240sqm of land then that's a super high bar for what is already a compact form of housing that's realistically only going to apply in one part of the country. And I have a hard time accepting that as an equitable outcome.

by refactornz | 25th Jul 23, 10:34am 1690238095

if you want to tell me if there's a more productive use of 240sqm of land in an Auckland residential area than the townhouse that's already on it, then I could in theory buy that as an argument

An 8 story apartment block would be more efficient use of the land for starters.

Cities are more expensive to live in, full stop. It's the same worldwide.

It's also generally possible to earn more in cities, and to have a wider selection of jobs and careers available. If you live in a city and don't earn much, then why stay there? Move somewhere cheaper and let someone with higher earnings occupy the space.

I'm with JohnTrz and HGWR on this one.

But if we're going to set the bar above townhouses on less than 240sqm of land then that's a super high bar for what is already a compact form of housing that's realistically only going to apply in one part of the country

That's a very Auckland-centric view. Have you never been to Wellington city?

by GV 27 | 25th Jul 23, 11:12am 1690240354

How many eight story apartment blocks are you going to build on 240sqm of land, 30 mins from the CBD?

If you live in a city and don't earn much, then why stay there? Move somewhere cheaper and let someone with higher earnings occupy the space.

Family, support with defraying living costs that you'd otherwise have to mop up in their entirety using a lower income if you live elsewhere? In short, there's a bunch of reasons, none of which make the idea of one part of the country paying tax on already-optomised land usage in the name of optomised land usage any more logical.

That's a very Auckland-centric view. Have you never been to Wellington city?

Yes, terrible place. Full of Wellingtonians, for a start.

by refactornz | 25th Jul 23, 11:28am 1690241319

How many eight story apartment blocks are you going to build on 240sqm of land, 30 mins from the CBD?

Elsewhere in the world there are main apartment buildings 30 mins (and further) from CBDs of major cities.

Apartments will be built on multiple sections so 240sqm is meaningless there. You could get at least 30 apartments on 1000sqm, probably more.

That's a very Auckland-centric view. Have you never been to Wellington city?

Yes, terrible place. Full of Wellingtonians, for a start.

You're not doing yourself any favours there. Nothing but a whinger.

by GV 27 | 25th Jul 23, 11:47am 1690242457

Apartments will be built on multiple sections so 240sqm is meaningless there.

Cool, so you accept that it's flawed to tax someone at an individual level as if they could use that land to build eight story apartments then? What is the basis for taxing me on the potential land-use of 760sqm of land that I don't actually own?

Nothing but a whinger.

TOP advocates continue their brave 'hearts and minds' campaign against anyone who doesn't swallow their favourite brand of Kool Aid, as per usual.

I know people struggle when you point out small issues or logical issues with their pet causes or policies, but you can probably find to accept some degree of criticism without resorting to personal attacks for what is obviously a light-hearted jab.

by refactornz | 25th Jul 23, 2:19pm 1690251543

Oh I'm not a TOP advocate at all but I do see LVT as the least worse option to stop income taxes going up, and ideally bring them down. You're right though that someone is struggling to accept small or logical issues with their argument.

Cool, so you accept that it's flawed to tax someone at an individual level as if they could use that land to build eight story apartments then? What is the basis for taxing me on the potential land-use of 760sqm of land that I don't actually own?

Not at all. The land could be used for apartments which would be a more productive use of the land (you wanted examples of that). Whether or not you own it all doesn't make a difference. By using the land for a less productive purpose you're effectively land-banking. LVT would encourage more productive use of the land.

by murray86 | 25th Jul 23, 1:51pm 1690249889

A step sideways here; I've seen Amsterdam, Brussels, and Paris and the comparison is interesting. I would suggest the population pressures occurred years ago in Europe, well before things like environmental standards, and the other impacts and drivers of many of our cities today. In NZ these are only just occurring now (makes sense as we are just really just a 200 year old nation as opposed to 2000 years). So now we have a debate on how to best use our land, but this debate occurred a long time ago. Holland for example has only 15% of the land area NZ has but 20 times the population. Our debate today includes the need to preserve NZs natural history. Did that component in Holland even register when they debated this topic? It does now as they do have a national park.

But I think the discussion is important and needs to be had. I also think that many in NZ who choose and want to live in our cities need to accept densification to a degree. It just doesn't have to be ugly concrete jungles.

by JimboJones | 25th Jul 23, 9:59am 1690235981

Its an interesting point, but in reality even TOP know they will never get a land tax through so it is moot.

by GV 27 | 25th Jul 23, 11:25am 1690241136

I'm honestly starting to wonder if we end up with a snap election at this rate. So who knows. A single seat in an otherwise hung parliament could be worth a lot to a desperate would-be-government.

by Averageman | 25th Jul 23, 11:42am 1690242125

Maybe - imagine if TOP end up holding the balance of power. Can see the Greens backing it because its effectively a wealth tax in a different set of clothing, and Labour will do anything to hold onto the baubles of power.

by rastus1 | 25th Jul 23, 2:33pm 1690252408

TOP as a party wont be needed. Many of the polices they advocate will eventually be picked up by main parties. Just a matter of time.

by Chaosinflesh | 25th Jul 23, 12:17pm 1690244275

I noticed you were very anti removing the distinction between how businesses are taxed vs individuals. Have you thought any more on that? Yesterday's discussion seemed a little heated, so I stayed out, but a couple of discussion questions:

Companies are taxed on profit, whereas individuals are taxed on revenue.

1. Could we broaden the tax base effectively by taxing all entities on revenue, albeit at a lower rate?

2. Does this (the status quo) cause perverse incentives such that individuals attempt to classify as much income as possible as 'corporate' (e.g. investment rentals as companies with 'losses' offsetting the rental income vs owner-occupiers paying for the same class of good but having no eligibility to claim such losses)?

3. If the entity owning an asset truly is a company, why is there so much push-back against a capital gains tax? Is this because a CGT reduces the efficiency with which one may leverage into an additional asset?

I still believe a FTT is the fairest, broadest tax of them all - everyone is taxed equally on their use of government- aka country- backed currency. Hell, it could be imposed on, and paid with, alternative currencies easily also. And the implementation of such a tax would render all other taxes (not levies) unnecessary. And if charged on receipt of monies, greatly simplify accounting of tax liability as well.

by GV 27 | 25th Jul 23, 12:34pm 1690245280

1. Could we broaden the tax base effectively by taxing all entities on revenue, albeit at a lower rate?

That particular discussion was more out of concern people assumed that a company should be able to still meet all their current costs after taking a 15% hit to their gross. There's a pretty big difference between taking that before and after your semi-fixed and fixed costs are deducted. For a business on a single-digit % as a portion of sales bottom line, that's terminal.

(If you want to be pedantic about it, my revenue and my gross income as an individual is the same as I'm an employee and don't get any deductions - in theory, I have no deductible costs).

2. Does this (the status quo) cause perverse incentives such that individuals attempt to classify as much income as possible as 'corporate' (e.g. investment rentals as companies with 'losses' offsetting the rental income vs owner-occupiers paying for the same class of good but having no eligibility to claim such losses)?

My understanding is you can't offset them anyway, but given the biggest component of most rental overheads is the interest portion, nixing the deductibility of that has sort of rendered that question moot. I don't see why investors should get to use a residential property in the same way as someone else would as a main home (e.g. long term accommodation) but one gets a deduction for their financing costs and the other doesn't. But that's a personal opinion.

3. If the entity owning an asset truly is a company, why is there so much push-back against a capital gains tax? Is this because a CGT reduces the efficiency with which one may leverage into an additional asset?

A company is just a legal structure. The push-back on a CGT at a 'family home included' level is because you buy and sell in the same market and may suffer some loss on purchasing power. Push-back from investors is that yields are so far below par that they are better off having their money in the bank and they're struggling to accept that residential property might not be the money printing machine they've think it should be.

Note: I like FTTs but it's hard to see them as functionally different from a GST for most people and the question of whether they'd be inflationary as a result is particularly relevant at the moment.

by Chaosinflesh | 25th Jul 23, 1:55pm 1690250147

Thank you for the thoughtful response.

That particular discussion was more out of concern people assumed that a company should be able to still meet all their current costs after taking a 15% hit to their gross. There's a pretty big difference between taking that before and after your semi-fixed and fixed costs are deducted. For a business on a single-digit % as a portion of sales bottom line, that's terminal.

True. Which simply means a) businesses would need to adjust, and b) those that are marginal will fold. Any business outside of start-up phase that cannot support itself given tax liabilities is anathema to society in general (a liability to us all, not an asset).

I don't see why investors should get to use a residential property in the same way as someone else would as a main home (e.g. long term accommodation) but one gets a deduction for their financing costs and the other doesn't. But that's a personal opinion.

An opinion we share :)

The push-back on a CGT at a 'family home included' level is because you buy and sell in the same market and may suffer some loss on purchasing power.

The problem is this argument is flawed. First, the 'gain' is over-and-above that already retained from the prior property. So the 'loss of purchasing power' is based on purchasing power derived from untaxed gains vs the purchasing power of the waged - who paid taxes on their earnings. If CGT was applied, all except lottery winners and inheritors would be affected, and there is, in fact, no loss of purchasing power within the same cohort. Those currently leveraging gains from capital investiture currently have an unfair advantage over those who gain by way of labour, and the loss of this advantage, I would posit, is the real cause of the pushback, though happily embraced by those who fail to realise, admin aside, they are in fact unaffected. Note - I am 100% against taxing unrealized gains - such as the Green's wealth tax.

Note: I like FTTs but it's hard to see them as functionally different from a GST for most people and the question of whether they'd be inflationary as a result is particularly relevant at the moment.

In respect to inflation, an FTT has the potential to provide a far more effective control than, say, interest rates. And, were our transaction infrastructure not privately owned, easy to administer (practically, its no different to either GST or vendor surcharges). But it would need to be floating to be most effective, which would likely be very difficult to get public buy-in, aside from our currently geriatric stats/RBNZ schedule.

by KH | 25th Jul 23, 2:27pm 1690252070

As the Government gets bigger the people get poorer.

by Audaxes | 25th Jul 23, 10:12am 1690236721

As I noted in Grasping at the Suds of Yesterday’s Bubble, the entire historical total return of Treasury bonds, in excess of T-bill returns, has accrued in periods when the 10-year Treasury bond yield exceeded T-bill yields. A more useful “benchmark” is the weighted average of Treasury bill yields (0.5), nominal GDP growth (0.25) and core CPI inflation (0.25). Presently, that weighted average is: 0.5*5.4% + 0.25*7.2% + 0.25*4.9% = 5.7% which is clearly above the current 10-year Treasury bond yield of 3.8%. In my view, even a 2% drop in T-bill yields, nominal GDP growth, and core inflation would still leave prevailing 10-year Treasury bond yields only marginally competitive with T-bills. In effect, bond yields already anticipate a weaker economy, Fed easing, and success on inflation. That may prove to be true. It’s just that it’s already priced in. Link

by Audaxes | 25th Jul 23, 10:14am 1690236866

Rates are really simple, just most people are taught the opposite of reality. Fed doesn't control them and when things are good rates go UP. Everyone used to know this once upon time before jackass Greenspan. Even govt rates will rise in good times. https://buff.ly/44DomVn Link

by bw | 25th Jul 23, 10:59am 1690239544

And then we were subjected to his acolyte - Bernake, to be followed by the even more clueless puppet, Yellen.

by Audaxes | 25th Jul 23, 10:22am 1690237327

Cancellations Start For John Clauser After Nobel Physics Laureate Speaks Out About "Corruption" Of Climate Science

by powerdownkiwi | 25th Jul 23, 11:01am 1690239686

He was only a 1/3 share of the NP, “for experiments with entangled photons, establishing the violation of Bell inequalities and pioneering quantum information science”

Siloing is a right sod, isn't it?

What he doesn't point out, is that CC is merely one of a raft of indications of our overshoot.

https://www.stockholmresilience.org/research/planetary-boundaries.html

Follow the money?

by Audaxes | 25th Jul 23, 11:21am 1690240899

THREAD: In 2009, a whistleblower released emails showing how climate academia was manipulating data and blocking articles that didn’t support their global warming agenda. Be prepared to delve into the murky depths of one of the biggest scandals of our time? #ClimateGate Link

Scots ‘astonished’ as 15.7 million trees felled by SNP to develop wind farms

by powerdownkiwi | 25th Jul 23, 12:09pm 1690243767

Spin, Audaxes.

Learn to identify it.

by profile | 25th Jul 23, 1:19pm 1690247969

How to spin cutting down 15.7 million trees to erect raptor chopping windmills, to produce intermittent energy, is good for the environment? Asking for a friend.

"Of the 14 raptor species evaluated for the study, research indicated five of them could decline in population size either currently or in the future due to collisions with wind turbines.

“Additional fatalities caused by wind turbine collisions could cause the population growth rate of these five species to go from positive to negative, or for already declining species, to become even more negative,”

https://extension.okstate.edu/articles/2021/ellis-raptors-wind-turbines…

by profile | 25th Jul 23, 12:34pm 1690245259

And a few more trees to build the back up power for windless days.

"How does Wind (9% of mix) look? With Nuclear on scaled graphic. Wind has “wind droughts", day-to-day & seasonal variation. Wind produces ≈ 30-35% of theoretical capacity (CF); Nuclear≈85-90%, Hydro≈40-45%.

2021 data (8,760 points) for Ontario, Canada."

https://twitter.com/E_R_Sepulveda/status/1537048551452299264/photo/1

https://twitter.com/E_R_Sepulveda/status/1537048560763641856/photo/1

by JoolzT | 25th Jul 23, 11:37am 1690241845

Audaxes, you wouldn't ask a plumber to fix the wiring in your house would you? Likewise, John Clauser is a quantum mechanics physicist, not a climate scientist. Zero Hedge, the linked source is a far-right, libertarian website. It appears that you're more comfortable with sources which confirm your biases??

by profile | 25th Jul 23, 1:13pm 1690247623

It came out of John Clauser mouth - Zero Hedge just reported it. What problems do you have with what John Clauser said? Very little is known about clouds. What he has said is well supported in climate science theory - see NASA article linked. Just because Greta (PhD Theology, school dropout) tells you that you are doomed doesn't make it so.

"...When contemporary models are given information about Earth's present condition — the size, shape and topography of the continents; the composition of the atmosphere; the amount of sunlight striking the globe — they create artificial climates that mathematically resemble the real one: their temperatures and winds are accurate to within about 5%, but their clouds and rainfall are only accurate to within about 25-35%.

Unfortunately, such a margin of error is much too large for making a reliable forecast about climate changes, such as the global warming will result from increasing abundances of greenhouse gases in the atmosphere. A doubling in atmospheric carbon dioxide (CO₂), predicted to take place in the next 50 to 100 years, is expected to change the radiation balance at the surface by only about 2 percent. Yet according to current climate models, such a small change could raise global mean surface temperatures by between 2-5°C (4-9°F), with potentially dramatic consequences. If a 2 percent change is that important, then a climate model to be useful must be accurate to something like 0.25%. Thus today's models must be improved by about a hundredfold in accuracy, a very challenging task. To develop a much better understanding of clouds, radiation and precipitation, as well as many other climate processes, we need much better observations."

https://isccp.giss.nasa.gov/role.html

by Audaxes | 25th Jul 23, 10:36am 1690238162

"Intel’s Gelsinger told [Jake] Sullivan...that further restricting what his company does in China puts at risk a key Biden policy of bringing back chip production to the US...Without orders from China, there will be much less need for" factories in Ohio Link

by nktokyo | 25th Jul 23, 10:53am 1690239185

I'm pretty sure the slowdown will take the form of a long slow deleveraging, after which the devalued nature of everything will lead to the next round of "growth"

by powerdownkiwi | 25th Jul 23, 11:05am 1690239946

I keep saying - there's not enough planet left for 'growth'. Hasn't really been since 2005/8

Why do you think there were no WMDs? Why was Nuland in Ukraine in 2014? Who is she married to, and who is his bro? They realise it's last-hegemony-standing, and that without energy there is no hegemony...

And with reducing energy, there is no growth. Only by fixating on GDP and concurrently ignoring debt, can the latter be claimed.

Temporarily....

by Pa1nter | 25th Jul 23, 11:36am 1690241810

I keep saying - there's not enough planet left for 'growth'. Hasn't really been since 2005/8

Is that the last time you went on a plane?

Plenty of growth left on the planet. Just less in the places that've previously grown the most

by powerdownkiwi | 25th Jul 23, 12:17pm 1690244275

No correlation between your sentences, and nope, there isn't.

https://www.simonmichaux.com/gtk-reports

https://www.thegreatsimplification.com/episode/19-simon-michaux

https://www.amazon.com/Blip-Humanitys-self-terminating-experiment-indus…

https://www.jstor.org/stable/1310258

Come on, you're one of the smarter ones...

by Pa1nter | 25th Jul 23, 12:45pm 1690245913

I move around quite a lot, and what I see in many parts of the world doesn't mirror your sources - growing, and in fairly early stages.

It's night-night time for others though, for sure.

by KH | 25th Jul 23, 2:33pm 1690252381

New Zealand is overloaded. The source of many of our problems.

by dollar_bill | 25th Jul 23, 3:01pm 1690254089

simon michaux makes some stark observations and hits on some uncomforatable truths, both of which will have the head in the sand brigade digging themselves deeper.

by Squishy | 25th Jul 23, 11:25am 1690241101

And oil prices are up +US$1.50 at just over US$78.50/bbl in the US. The international Brent price is now at US$82.50/bbl.

OPEC are ruining our plans to reduce tradable inflation, back down to $70-75/bbl like last quarter please.

by Yvil | 25th Jul 23, 5:15pm 1690262142

professional economists are explaining that the yield curve actually signals the slowdown in inflation that typically accompanies a recession, but not the actual recession itself

Rubbish, the recession will come and it will be severe. You don't need to be an economist.

Mountains of debt and the cost of that debt skyrocketing can have only one outcome, a severe recession. All other economic news is insignificant noise.