90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Biggest tax reforms in over 20 years; Fresh Irish bank bailout; Spain's rating cut

1st Oct 10, 9:00am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand on October 1, the first day of New Zealand's biggest tax reform package in more than 20 years.

GST increases from 12.5% to 15% and personal income tax rates drop across the spectrum with the top tax rate dropping from 38% to 33%. See all the details of the tax changes here at IRD.govt.nz.

Businesses can find all the details of the quirks with the GST increase here at Taxadvisory.govt.nz.

It's too early to say how much of the increase will be passed on by retailers and suppliers, but there are some who are choosing not to pass the increase on.

Others are passing on more than the increase, citing increased ACC levies, Emissions Trading Scheme costs and rises in the costs of other commodities such as milk.

There are however a forgotten group who will lose from the GST increase. Those people with savings in term deposits and debentures will effectively lose more than NZ$1.9 billion worth of purchasing power from their NZ$93 billion worth of deposits.

That is not being compensated for in the GST package.

Meanwhile, in other news, the New Zealand dollar edged back to around 73.4 USc overnight as overseas traders reacted to weak New Zealand business confidence figures and the lowest building approvals since July last year.

The Australian economy is also feeling the effects of deleveraging as building approvals and housing credit were weaker than expected.

Meanwhile the Irish government announced it was preparing to take over Allied Irish Bank and to pump more cash into Anglo Irish Bank. The rescue packages are now set to top 50 billion euros and the Irish government deficit is set to be 32% of GDP this year. Irish bond yields rose sharply again and there is speculation it may have to use the European rescue fund before Greece.

And finally Moody's downgraded Spain's credit rating by one notch to Aa1 on concerns about its sovereign debt.

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31 Comments

by noponies | 1st Oct 10, 9:30am 1285878655

Not that many happy Irish with that bailout. C4 reported the choice as letting the bond holders take a haircut and lose confidence in the Irish banking system or letting the taxpayer take the hit and lose confidence in the Govt. Election time will be interesting.

The Tories here are sort of lucky with their 5 year run at it.

by goldenfox | 1st Oct 10, 10:18am 1285881537

Don't think it won't happen here!

Just wait for the residential and farm mortgage implosion

Those Aussie banks will collectively threaten to walk and taxpayers will have to pony up the dough.

Fortunately we don't have as much debt as the Irish, but we are in a very similar position. Too dependent on fast moving foregin deposits.

by andyh | 1st Oct 10, 9:31am 1285878689

More bad news coming down the track for the US housing market:

http://www.cnbc.com/id/39441529

Given that the collapse in the US housing market was the major contributor to the GFC, and given that the US housing market stands on the cusp of a second leg down could someone please explain how 2011 is not going to be another desperate year for the US (and by extension the global) economy?

by Andrew in Finland | 1st Oct 10, 10:02am 1285880556

well for example in the USA 15 and 30 year mortgage rates are at 50 year lows, most people are working and still spending and manufacturing is doing ok considering. Rates are still exstremely low in Europe where places like Finland are revising upwards various earlier growth predictions and even forcasting rising European rates for next summer. And places like NZ are still generally getting good prices for exports because world demand with super low interest rates and stimulus remains fairly good. You must have got the memo by now about the new reality? :-)

by Gummy Bear Hero | 1st Oct 10, 10:59am 1285883953

Most folks , and some wayward economists , see a " second leg down " after every financial shock . After the '87 stockmarket plunge , many foresaw a second plunge , which didn't materialise . Ditto in March 2008 , with the Dow at it's nadir 6600 points , the Robert Prechters of the world came out snarling that it was gonna collapse to 3000 points .

Since the global financial crisis we have heard a chorus of people predicting a " double-dip-recession " ( i.e. Bernard Hickey ) and a " second-leg-down " in the US housing market .

Some forget that a recession is defined by at least 2 consequecutive quarters of negative GDP . Where in the world is there one quarter of negative GDP , currently , Bernard ?

by steven | 1st Oct 10, 11:38am 1285886310

If you are saying the first paragraph is what ppl have said on every other occasion please post some URLS...

On this occasion we have economists on every spectrum taking about a probable second dip....if you are predicting this isnt the case and these ppl are all wrong by all means step out and do so....rather than blindly critising them for being 'wayward".....

Sure the textbook might say 2 quarters....but for many americans (and others) who have been out for work for a year that is a recession...there is no double dip back into a recession for them....indeed the real economy shows little real sign of a recovery.....look at the un-employment numbers....pretty much the best that can be said is that un-employment rate has slowed....Where are we seeing ppl do well? some areas of the financial economy have....but they are really parasites....they have just been better latley at sucking out the blood from ppl and have had support from Govn(s) to do it, risk free...

Beyond that text book also look at the fact that there is a need for 4% indeed 6 to 8% growth to get out of the debt and get ppl working. The real "growth" rate is < 1% and with inflation at >1% that in effect is a recession...

You never cease to amaze me on how you again and again can reach a totally unbelievable conclusion(s) showing no of little logic or even rational thought and then say others are "wayward" in the same para...

regards

by Gummy Bear Hero | 1st Oct 10, 11:51am 1285887076

As they say , economists have predicted 9 of the last 3 recessions . And they're still at it . Our own darling Hickey , has had a complete change of fiscal mindset , and run back to his idealistic socialist days of yore . That , as St. Nick said , is probably the litmus test for the worst being over . The last of the bulls has been slain .

Get a few stocks under your belt steven , snaffle up some commodities while you can . Profit from the " peak-oil " thing that you're so sure of .

However you try to massage the figures to suit your debate ( Bernard does it too , to assuage criticism from his pitiful house price prognostications ) , a recession is two or more consecutive quarters of negative GDP .

by Fred | 1st Oct 10, 5:55pm 1285908941

Hi Gummy, I've seen you say that twice now, that the peak occurs when the last bull has been slain. Isn't it slightly different. The peak occurs when the last bear becomes a bull. The last bear sitting on the sideline just "knowing" there is going to be a fall listening to all of stories of profits to be made, finally gives up and piles into it. The time to sell is when the shoeshine boy says it's time to pile in. http://fofoa.blogspot.com/2010/09/shoeshine-boy.html As an aside FOA also says that gold cannot form a bubble.

by Gummy Bear Hero | 1st Oct 10, 9:19pm 1285921154

No , that is NOT what I said . When the last of the old bulls has been slain , then the trough , the nadir has passed . Not that Bernard was ever a bull .............. Negativism is encoded into the DNA of journalists .

The day that Bernard recants the idiocy of his new found central planning theorem , when he regains his confidence in the marketplace , the law of supply & demand ............. I'll be shorting the market !

Can Gold really not form a bubble ? Try heating it up enough ........... and see .

by Fred | 1st Oct 10, 10:17pm 1285924675

Ah my gummy hero I misread, but the last bubble of all has yet to pop, tis only baby bulls being slain http://www.thedailybell.com/1413/Elite-Between-Rock-and-Hard-Place.html

by Roger Witherspoon | 1st Oct 10, 11:39am 1285886360

Steve Keen has this to say

http://www.debtdeflation.com/blogs/2010/09/20/deleveraging-with-a-twist/

The latest Flow of Funds release by the US Federal Reserve shows that the private sector is continuing to delever. However there are nuances in this process that to some extent explain why a recovery appeared feasible for a while.

The aggregate data is unambiguous: the US economy is delevering in a way that it hasn’t done since the Great Depression, from debt levels that are the highest in its history. The aggregate private debt to GDP ratio is now 267%, versus the peak level of 298% achieved back in February 2009–an absolute fall of 31 points and a percentage fall of 10.3% from the peak.

...

With the debt to GDP levels for all non-government sectors of the American economy at unprecedented levels, the prospect that any sector can be enticed to take on yet more debt is remote. Deleveraging is America’s future.

by andyh | 1st Oct 10, 12:52pm 1285890742

Andrew in Finland - are you that same Scando-fruitcake who used to lurk around the boards pre-2008 saying everything was wonderful with the global and NZ economy?

If so, I am amazed you have popped your head back above the parapet considering you called it so spectacularly wrong back then.

Apologies if not said fruitcake.........

by Andrew in Finland | 1st Oct 10, 4:13pm 1285902823

I am the same person who said to a chorus of abuse that china would likely help the NZ economy and world demand for food and future inflation would likely be kind to NZ commoditiies and there was a possibility that there would not be big falls in nominal nz house prices, that the authorities would throw everything at preventing a recession and whatever happened next would play out further out than 2009 when NZ rates could fall to 3.5% by may 2009 and house price crashes tended to happen in slow motion. And i am the same person who said he sold his london house in 2005 because he expected a crash in prices but i was not so down beat about NZ which even did well in ww2.

Even so i will give you kudos for calling the hubbard situation pretty accurately

by andyh | 1st Oct 10, 4:55pm 1285905308

Well welcome back then Andrew.

by Andrew in Finland | 1st Oct 10, 5:57pm 1285909044

Pity we dont have the original text from 2008. I note today for example

"crossbred wool selling for its best prices for at least 5 years"

"Things continue to go from strength to strength for dairy giant Fonterra"

And I was spectactularly wrong?

by David George | 1st Oct 10, 9:33am 1285878821

"the Irish government deficit is set to be 32% of GDP this year"

That's not a dangerously high deficit, that's collapse and they're selling their debt for 6.5% yield with horrific figures like this?

Where can I find out what Double Dipton's paying?

by Neville C | 1st Oct 10, 11:44am 1285886655

The Economist has 10yr Govt bonds rates as

Ireland 6.79

NZ 5.02

Oz 5.05

by Neville C | 1st Oct 10, 11:55am 1285887307

This site has credit default swap rates. (This is the annual insurance premium payable for insurance against the risk that the country will default) The lower the better.

China 86
UK 74
NZ 60
USA 59

http://verlorenegeneration.de/landerisiken-im-uberblick/

Its in German so you need to get google to translate it

http://translate.google.com/translate?js=n&prev=_t&hl=de&ie=UTF-8&u=htt…

by Rob of the North | 1st Oct 10, 9:37am 1285879028

How does Bernard equate depositors losing 1.9% purchasing power due to the GST increases etc on their deposits?

i understand what he's alluding to but if they're in a fixed term they can't be spenders until the term runs out and daily price fluctutions ,sales etc would surely offset that 1.9 % that Bernard espouses in his clip above?

is he advocating deflation or inflation.

o.k you down the back there with your hand up..what's the answer?

by Gummy Bear Hero | 1st Oct 10, 10:48am 1285883283

Sir ............. sir , yes me ..............ummmmmmmm , Bernard is drawing a long bow that the GST rise will raise the inflation rate . And that incremental increase in inflation is where term depositers lose some of the purchasing power of their munny ............... Can I go out and play now .............. Sir ?

by Rob of the North | 1st Oct 10, 11:22am 1285885352

yes,Jung Gummy...you can take your lunch down to the back of the playfields and show the girls your expertise?

by Roger Witherspoon | 1st Oct 10, 10:57am 1285883861

Good on you Bernard for raising the issue of stealthy stealing from those who save or have saved.

Without saving by New Zealand residents we will have to borrow even more from overseas and ultimately sell them our assets at whatever fire sale price they will give us. Why do politicians never learn how the world works?

The good news is the private sector is actually saving at the moment and the exchange rate with our major customer is moving in the direction of making exporting profitable. We still have options. Just need to get that government borrowing stopped too and she'll be right.

by steven | 1st Oct 10, 11:40am 1285886436

Its actually bad news they are saving and deleveraging on a national scale, totally rational on an individual scale.........lol...cant win...

regards

by Andrewj | 1st Oct 10, 12:22pm 1285888962

'The investors are attempting to force the Irish authorities to pay them more for the debt they hold in Anglo Irish Bank and say if their demands are not met they could trigger a default crisis.'

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8035645…

by steven | 1st Oct 10, 12:54pm 1285890885

nasty eh....

regards

by steven | 1st Oct 10, 12:55pm 1285890952

Of course this will destroy what confidence is left in investors, just what the Irish govn was trying not to do....nice PR disaster in the making...

regards

by Nicholas Arrand | 1st Oct 10, 12:29pm 1285889385

"Ecuador's government declared a state of emergency saying rebel troops and police were staging a coup... and storming Congress in a mutiny over pay cuts.". The first of many?

by spirk | 1st Oct 10, 1:10pm 1285891824

Bernard may have not have a crystal ball, but his reasoning is correct. He hasn't taken into account doing even more stupid things to make things look good in the interim. I did this after I lost back in 1987. October 1987 was the big fall but then the markets came right back but then slowly dropped right back. I assume the instutions manipulated demand and price to see themselves clear while once again Joe public missed out?. It will not happen to me again

How many more years can we keep borrowing before we are in the same position as other countries??.

Lets hope something comes along or Bernard will be right, not just warning us of what the facst show will or should happen. Thanks for sticking your neck out

by Daisy | 1st Oct 10, 1:57pm 1285894672

If you thought economics was a concern - read this !

www.nzcpr.com

by Bobby | 1st Oct 10, 4:27pm 1285903642

Daisy, Key and his mates are giving our seabed and forshore to the Maoris. Why? They were not even the first people to inhabit New Zealand. The evidence that shows who the 1st people to arrive in New Zealand were, is embargoed by the Government until 2063. Why? What is the real reason for the lies and deceit?

by Wolly | 4th Oct 10, 8:28am 1286134128

Yeah I know, wrong thread...no worries...guess what...Wellington is so unready for a big EQ that it is a joke.....also a pretty good guide to the state of the Noddy economy!

http://www.stuff.co.nz/national/4193161/Capital-not-ready-for-the-big-one

"A report on the audit, which went before the council last year, said it painted a "bleak picture" of the Wellington Region Civil Defence Emergency Management Group's readiness for a large-scale event.

If the Wellington fault line ruptures, it is expected to release four times as much energy as the 7.1 magnitude Canterbury quake."