Air travel grows; US durable goods orders lower; China insists on tariff rollbacks; Aussie retail flat; OECD says NZ taxes rising faster; UST 10yr yield at 1.79%; oil unchanged and gold down; NZ$1 = 65.5 USc; TWI-5 = 70.6

Air travel grows; US durable goods orders lower; China insists on tariff rollbacks; Aussie retail flat; OECD says NZ taxes rising faster; UST 10yr yield at 1.79%; oil unchanged and gold down; NZ$1 = 65.5 USc; TWI-5 = 70.6

Here's our summary of key events overnight that affect New Zealand, with news New Zealand taxes are rising while globally they are stable.

International air passenger travel is holding up better than airfreight cargoes. In October international travel was up +3.2% from the same month a year ago and for the Asia Pacific region it was +3.8% higher. While these are slowdowns in growth, this expansion seems more resilient than the trade data.

The final durable goods orders data for October in the US has come in lower than their flash number, and that was unexpected. It has turned out to be -1.3% lower than in October 2018 and excluding defense orders they were down -2.3% on the same basis. This trend is not healthy. Shipments were lower as well.

All eyes in the US are now firmly fixed on tomorrow's non-farm payrolls report.

The Chinese have reiterated that US tariffs must be reduced to win their approval for a limited 'phase one' deal. Equity markets are faltering over the receding prospects on that front, despite other positive official words.

In Australia, retail sales were flat in October from September. Nationally they are up just +2.7% in a year when inflation is +1.7%, indicating low or stagnant retail growth. In Victoria, retail sales grew just +1.9%, in NSW it was just +2.1%. And in South Australia it was below inflation at only +1.6%. The 'best' result is in Queensland where they are up +4.4% in a year.

And fallout in Australia from the RBNZ Capital Review has been muted and nothing like the warnings given in advance. In fact, bank shares rose, with ANZ, the supposed worst affected, up by +2% after the release.

And their competition regulator is warning consumers about the downsides of customer loyalty schemes. Essentially they say these schemes benefit the companies, not their customer members who can get taken advantage of easily.

The OECD reported that New Zealand's tax revenues as a percent of GDP rose relatively sharply in 2018 to 32.7% and the fastest rise since 2010 when we raised the GST rate. Although our level is lower than the OECD average, that average is pumped up by high-tax European countries, so those benchmarks are not so relevant to us. We have a similar level as Canada, but well above the Aussie level of 28.5% and the US level of 24.3% (which dropped sharply due to some irresponsible cuts to taxes on the wealthy and companies). Japan is at 31.4%.

The UST 10yr yield now at 1.79% and a +1 bp rise since this time yesterday. Their 2-10 curve is marginally wider at +21 bps. Their 1-5 curve has more positive at +9 bps. Their 3m-10yr curve is also more positive +21 bps. The Aussie Govt 10yr is at 1.14% and that is back up +1 bp since this time yesterday. The China Govt 10yr is now at 3.21%, and unchanged. The NZ Govt 10 yr is now at 1.46%, and +6 bps rise.

Gold is down -US$1 to US$1,479/oz.

US oil prices are softer today to just on US$58.50/bbl. The Brent benchmark is just on US$63.50/bbl. But most of yesterday's big gain is holding.

The Kiwi dollar is higher again, now at 65.5 USc. On the cross rates we are higher too at 95.8 AUc and some analysts see it going higher yet. Against the euro we unchanged at 59 euro cents. That puts the TWI-5 up at 70.6. We should also note that the Chinese are letting their yuan depreciate slightly faster, presumably as they are now seeing less likelihood that a deal with the Americans is coming.

Bitcoin is softer today at US$7,453 and down -2% from this time yesterday. The bitcoin rate is charted in the exchange rate set below.

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67 Comments

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The old increase the population or fade and die. It's a one way path to a mass die off.

... the old chicken little running around with her tin foil hat , shrieking that the sky is falling , and that the boomers have stolen her chickenhood ...

She doesn't mind sitting in the hutch and the luxuries it provides, that was built by the boomers. I'm not a boomer but I remember the Muldoon budget speeches "thighten your belts".... That wouldn't go down so well now days.

I like the term 'decolonising the economy' and think it is most apt. While the arrival of the Europeans is being touted these days has highly negative, I feel the real negative impact has been the economic models applied. From the 80's on the impact has largely been negative across the whole middle and lower classes, and this was driven primarily from a US base as they tried (and succeeded) to impose Milton Friedman's "free market" model on the world. So in effect NZ has been colonised three times (Maori, European, Economics).

Tax up sharply. I doubt that will make the mainstream news.
What would the wording have been if the CGT was pushed through... ?

11
up

Time we dropped our GST back to 10% like the Aussies, stop stealing from the poor to benefit the rich with these regressive taxation methods.

"but well above the Aussie level of 28.5% "

Or reduce income tax

Or means test Super

... one theory had it that the sheer cost involved in means testing , and the inconvenience it caused , outweighed the sum saved ...

Hah - todays technology is easy to implement and the IRDs new system is now seeing most forms of income for personal IRD holders. People like Gareth Morgan would automatically not get it - so no Gummy your excuse does not wash. But saying this once the last Boomer is in the grave I am sure they will implement it.

Nope because boomers will be replaced by Gen-Xers and I and my fellow GenX will not vote for any party that threatens to means test super.

I'm a Gen Xer..you dont speak for me delboy

It's really difficult to means test. I was around when they had the super surcharge and the well off didn't pay it. Because they owned no assets personally and made sure that any assets couldn't be attributed to them, so their personal income was low. This would still be the case.

Trust laws have now changed fmr .and the IRD see far more information than 10 years ago.

You don't need a trust?
" From 2011 onward, gifts are no longer liable for gift duty, and gift recipients don’t need to file any documents with the government."
Sure, you have to 'trust' the beneficiary, but that's the problem with all Duties - there's a way around them.
https://transferwise.com/gb/blog/new-zealand-inheritance-tax

But what about everyone else? I mean overall the tax burden would be greatly reduced as the honest 95% of people comply, wouldn't it? I would like to see some real numbers of how many paid super surcharges when they were/are enacted. Not just anecdotal evidence.

I am sure tax evasion or benefit fraud via trust usage or otherwise could be targeted in other ways if the political will was there. Like it seems to be with the sickness/job seekers benefits.

Test on the value of one's primary residence(s) in that case.

Why should the value of the one home I worked my arse off to buy, in a market inflated by property investors, count against me when it comes time for me to hang up my boots after forty plus years of paying tax and supporting the ability of others to draw down a pension regardless of means or needs?

Because I know whose door you should be knocking on first, and it's not the people who have a singular family home and have only ever owned one house at any given time.

If you think boomers are entitled, wait until millennials get to this point after being expected to jump through more and more hoops to have a lower standard of living for people who got money for nothing once they turned a certain age. You ain't seen nothing yet.

Means test the supper ='s cut out the people who added the most to the fund.

No - cut out those who dont need it including those rich immigrants that arrived here ten years ago.

I suppose you don't put yourself in the category of the well-off?

10 years here and rich, no super, I agree. But cutting out the people who paid the most into it is a loss at the next election for anyone who introduces it.

What fund? Super is funded by current taxes, there is no "fund". In the 70's there was a fund, but that was raided by the government. There is a fund now - Kiwisaver.

So transfer the kiwisaver my wife has accumulated by saving at the highest possible rate and working full time despite cancer treatment and lets give it to my neighbour who is a retired alcoholic drain layer with zero savings.
No Kiwisaver does not replace super - it just makes retirement bearable.

We should reduce the tax slabs at lower income levels and increase those at higher levels. For example, we could make the first 14k tax-free, raise the tax brackets to catch up on the PAYE bracket creep over the last decade and recoup all that lost revenue by introducing a higher slab on earnings over 200k or so.

14
up

Totally agree - first $15k shoud be free and clear of tax of any sort!

Yes.
You would think this would be a no brainer for a Labour led government...

That's right. According to that OECD report, we're 3rd highest in tax take from personal income, gains and gifts in a list where our slab rates are low compared to many other nations.
Clearly, taxing median wage earners at a marginal rate of 30% and those earning at the top end at a rate barely 3pp higher has a lot to do with it.

I think higher tax rate needs to start lower than 200k maybe 120k. Starting at 200k will capture minimal revenue.
Maybe grade up to 36c in the dollar from 120-160k, then 40c in the dollar above 160k.
Have a tax free threshold for lower income.

This article states that the total tax take is UP, and it is higher than Aus & US.
Within this context why talk about increasing income tax?
If you increase income tax to 40% over 160k then the amount of income earners over 160k will evaporate almost overnight.

It can be revenue neutral.
Low middle income earners pay a bit less tax, middle- high income earners a bit more.

How will they disappear? If you earn a salary there's no way around it.

Shareholder employees will take lower salaries. Salaried employees will look for legal tax deductions. Employees will move away from salaried positions into contracts. Businesses will restructure new remuneration packages to offer lower salaries and higher equity/options or other alternatives. Accountants and tax planners will make a lot of money.

Trading trusts is the usual option. You pay 33 cent trust rate but better than any higher personal marginal rate. Trading trusts were the reason why National cut the top personal rate of 39 cents down to 33 cents to match the trustee rate to stop tax structuring of personal service income (and also to give their voters (high income earners) a tax cut).

Easily fixed - make trusts use the top rate.

Even if you tax 100% of income over $200k, you will not get enough to offset the lost tax income from not taxing the first 15k. there are many, many people in the 0-15k bracket, there are so very very few in the top $200k bracket. So the government income will reduce. So, this will never happen.

It will never happen? Even though on half the planet it has already happened? In the UK the first NZD25,000 is tax free

Just to give you some real numbers: no tax on the first $15k of income reduces total income tax by more than $5.5b. On the other hand, for every 1% increase in the income tax for high earners (lets say anything over $150k), the government will collect $55m more in taxes. So creating a super rich tax bracket of 43% will bring in about $550m, at 53% it will be about $1.1b. Even if it is increased to the world highest individual tax rate of 63% it will only raise $1.7b.
At a tax rate of 100%, we will get $5.4b (which is still less than the $5.5b). Who will work to earn more than $150k if it is all taxed with no corresponding benefits whatsoever?
I am so sorry to have spoiled your ingenious, progressive, caring solution, that no one else has ever conceived with some dumb numbers.

Correct, which is why a comprehensive CGT and/or land tax/stamp duty should be introduced as well.

We have many wealthy people in the country who have near zero tax rates. They aren't income rich, but in the current environment they are absolutely milking asset price increases and not giving anything back to the economy. These should be clawed back with the tax take off setting income tax breaks, particularly at the lower end, which will effect everyone earning income and drive the economy through increased spending.

Our economies are based off consumption and real monetary flows around real goods and services. Not numbers on asset books propped up by debt. The sooner we reverse the latter and encourage the former, the sooner we all become more wealthy through real economic growth. Taxation has a huge role to play.

I like the land tax. I like the way it hits foreigners non resident in NZ. I like the way it discourages land banking. Only problem Ii have with it is my own wealth is almost 100% my own house and that is 20% house and 80% land according to latest CV so being retired i would have to move to somewere smaller. Conclusion - lets have a land tax and introduce it in stages - say 7 years.

A Comprehensive capital tax was projected to bring in $2.7b by 2026. That is assuming a prospering economy in which there are capital gains to make. That is less than half of the tax income you would lose by not taxing the first $15k of payroll.
I am confident that any form of land tax would bring considerably less income than the $2.7b. So again, it will not provide the kind of income you need to compensate not taxing the poor.
It is really ironic that when you have so many poor people in your country, taxing the rich will not reduce poverty. I do not have any ideological issues with taxing wealth, taxing land etc, but it will not bring "equality". Such taxes will improve equality the same way equality in education outcome has improved. The low scoring students remain the same over time, however the high scoring students scores drop, reducing the gap thus improving equality. But this is surely a terrible outcome.
You will need better paying jobs to really improve the situation. or at least a greater number of people who earn minimum annual wage!

yeah, it's not a secret that those who have less, in general want to pull down those who earn more, instead of sharpen their skills, read couple of smart books (not the ones aka "how to become billionaire") and sound and look more professional during their next interview.
P.S. I don't think earnings in 120 - 160 brackets are of a rich people in NZ

Not that simple.

I'm not saying it is simple, but if you want to earn 150k you probably have to do and know things of a slightly different scale and complexity

But
1. There are only ever a certain number of high paying jobs.
2. There are only ever a certain number of people with the attributes to do those jobs.

At any given time, yes. But surely the aim should be to grow the pie. Create an environment for business, innovation and productivity to flourish.

Agree about growing the pie, but even if successful (we've heard lots of rhetoric in NZ - closing the gap with Aus blah blah blah) takes a long time.
In the mean time, most of NZ's salary earners are on low to moderate incomes, mostly through no fault of their own. And we need these people for our society and economy to function.
So let's give these battlers a bit of a break, and have a 15K tax free threshold.
The loss in tax revenue can be at least partly balanced by higher taxation on higher income.

There aren't enough high salary earners in NZ to make much tax of a higher 200k threshold viable. It sounds good politically though. But private companies would just reduce their end of year salaries and leave money in their companies at the lower 28% tax rate. There is no way that the govt can increase the company tax rate, as it is already quite high globally. So that move would not bring in much revenue.

Correct, and the tax system already relies on collecting a massively high amount of income from a relatively small group at the top end of the scale. Talking about this sort of things without examining the perverse incentives of things that tax revenues fund that actively contribute to higher living costs (Accommodation supplements and rents, WFFTC and wage suppression) is dancing on the head of a pin.

I agree with the latter half of your argument. That money is better spent on public projects and initiatives that provide socioeconomic benefits in the longer run, instead of lining the pockets of wealthy capital/asset owners through such subsidies.

I could have worded it better - taxing those with the most resources to minimise tax or the skillsets to just get up and leave has a predictable result. Being too simplistic about tax reform won't work for us in the long run - there's a lot of ducks to get in a row if you actually want meaningful long-term change.

The Person; why does GST "steal from the poor to benefit the rich" ? the rich spend more and therefore pay more GST, also the poor are more likely to receive the tax collected from GST through some form of benefit.
I'd much rather see lower income tax

NP

Most analysis shows that proportionally the poor spend all of their income (and some), which means their entire income is subject to a 15% tax. High income earners only spend marginally more than the poor (we all have to eat etc), but are able to save a much higher percentage of their income - which isn't taxed at 15%. Hence the poor often pay similar or higher tax rates as the wealthy when taking into account GST. Not similar absolute values, but similar rates.

The less the poor have to pay in income tax and GST, the less they have to be supported and the more the country can save on the unproductive job of income redistribution.

Except the poor also spend a higher percentage of their income on rent, which has no GST applied. So it is probably closer to half or less of their income that is subject to 15% tax on spending.

But property investors tell us that all that money is spent on property services and they don't make any money from property investment! If it's not, then it is spent on debt servicing, which is also dead money. They can't have it both ways.

Tax breaks for the poor mean less dead money as they will be spending more of it on other goods/services. Remember this is what ACTUALLY helps the economy.

Given tax breaks, some of them may be able to afford things like going to the dentist, visiting a doctor, going out for dinner and a movie, more food etc etc. That's all money flowing around the real economy, not being put into leveraged assets or given to off shore banks.

Also remember that 10% of all rent in NZ is paid by the government to private landlords. That's $1.5b! https://www.stuff.co.nz/business/opinion-analysis/113200606/bad-design-o...

We are subsidising private landlords and by extension high house prices. Redistribution of wealth from the productive economy (most tax revenue comes from income and GST) to the already broken housing market is not smart. We would get more bang for our buck by making the first 10-20k tax free and simply removing the Accommodation Supplement all together and avoid the redistribution costs (WINZ assessments etc).

Really we could say the same for WFF. Remove the supplement and make schooling/dental care/hospital visits free for all children, which is what WFF is supposed to target. I suspect there would be a public outcry at such a suggestion however as people will be using WFF for other purposes.

"...the poor spend all of their income (and some)…" ever considered that this may be the reason why they are poor?

Nice shifting the goal posts. Ever considered that there needs to be poor people for there to be rich? Rubbishing poor people essentially says that you don't understand the system you participate in. It also paints you as a rich person who will claim "I made all the right choices" without acknowledging there is a lot more at play than simple decisions.

Exactly.
Property investors are clearly the new feudal overlords, and everyone else the servants.
We know how feudal systems end....

Feudal systems last for millenia. China for 2,000 years to date and most of Europe from recorded time to about 18th century. It is democracies that are fragile - Athens democracy lasted 186 years and Sparta lasted much longer.

"For a typical British middle-class professional, the lifetime bill totals £3.6m – considerably more than the typical house. You will spend a full 20 years of your life or more in obligatory service to the state. On a time basis, the state owns as much of your labour as the feudal lord did that of the medieval serf, who gave half his working week to farm the land of his lord in exchange for his protection."
https://moneyweek.com/518855/weve-got-plenty-of-taxation-but-not-much-re...

You're venturing outside your terms of reference, surely?

The difference is glaringly obvious; the lord took it all for himself, governments put it into communally-owned assets or facilities. No individual can supply what my local library does. And the privat sector, all things being equal, are more expensive due to charging a profit, not to mention the trend towards monopoly

The difference is glaringly obvious; the lord too it all for himself, governments put it into communally-owned assets or facilities

Ah. No. As profile said, the labour was in exchange for defense which was and still is the most perfect example of a public good. So, no, not "all too it all for himself".

And the privat[e] sector, all things being equal, are more expensive due to charging a profit, not to mention the trend towards monopoly

And the public sector isn't for all intents and purposes already a monopoly?

Yeah that comment was paid for by Big Feudal. Literacy was remarkably high in the UK before state education stepped in. For all our state education we still have persistent levels of illiteracy.
"For profit" plastic surgery is far cheaper than not for profit healthcare. Give me Singapore over the NZ/NHS any day.
"Because of the price transparency and market competition that characterizes the market for cosmetic procedures, the prices of most cosmetic procedures have fallen in real terms since 1998, and some non-surgical procedures have even fallen in nominal dollars before adjusting for price changes. In all cases, cosmetic procedures have increased in price by far less than the 100.5% increase in the price of medical care services between 1998 and 2016 and the 176.6% increase in hospital services. In summary, the market for cosmetic surgery operates like other competitive markets with the same expected results: falling real prices over time for many cosmetic procedures."
https://www.vox.com/policy-and-politics/2017/4/25/15356118/singapore-hea...
https://fee.org/articles/if-cosmetic-surgery-has-a-working-market-why-ca...

The final durable goods orders data for October in the US has come in lower than their flash number, and that was unexpected.

The evidence continues to pile up for increasing slack in the US economy. While that doesn’t necessarily mean there is a recession looming, it sure doesn’t help in that regard. Besides, more slack after ten years of it is the real story.

The Federal Reserve’s favorite inflation measure in October 2019 stood at 1.31%, matching February for the lowest in several years. Despite constantly referencing a tight labor market and its fabulous unemployment rate, broad pricing pressures remain scant. Link