90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: Milk powder prices fall 1.1% in Fonterra auction; RBA signals rate hikes; US housing starts fall; US factory output stalls

18th May 11, 9:01am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am in association with Bank of New Zealand, including news that milk powder prices fell 1.1% in Fonterra's fortnightly internet auction overnight.

Prices in the auction are now down 11.4% from their peak in March. See the full GlobalDairyTrade results here.

However, Fonterra announced yesterday production was likely to rise 4% to a record high, meaning the total earnings by Fonterra farmers this year is likely to rise NZ$2.2 billion to NZ$10.4 billion after the payout increases to around NZ$7.77/kg from last year's NZ$6.37.

However, some of that is likely to be banked to repay debt. See more here from Gareth Vaughan on Fonterra's production forecast.

Bank economists are forecasting a 13% drop in the payout this year. See our earlier article here.

Meanwhile, the Reserve Bank of Australia has suggested in minutes from its last meeting published yesterday it is likely to increase interest rates in coming months, putting more downward pressure on the New Zealand dollar vs the Australian dollar. See more here at The Australian.

Elsewhere, US housing starts dropped in April and US industrial output stalled. See more here at BBC.

US stocks also fell after Hewlett Packard lowered its sales forecasts. See more here at Bloomberg.

The yen fell sharply after the Bank of Japan said the economy was in a "very severe" state. See more here from Bloomberg.

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60 Comments

by neco | 18th May 11, 9:10am 1305666605

Bernard this was front page DomPost this morning under "IS THIS FAIR Average farmer's tax $1506 Average wage earner's tax $8020"

http://www.stuff.co.nz/business/5017285/Is-the-rural-sector-paying-enough-tax

Do you know if these numbers stack up?

Tax paid by the 17,244 dairy farms in 2009: $26m

Tax paid by the agricultural, forestry and aquaculture sector: $319m

Tax paid by individuals through PAYE and source deductions: $23b

Total government tax take: $54.7b

Tax credit paid to Fonterra over 3 1/2 years: $28m

Average annual tax paid by 17,244 dairy farms in 2009: $1508

by Wolly | 18th May 11, 9:19am 1305667163

The thing you miss neco is that loan costs are a tax deduction....the rural sector is up to its eyeballs in debt to the banks...the profits are not there for most farmers...just massive costs!

So then the question is why are the banks not paying billions in tax.......oh but they have the ways and means to avoid and escape as well as claim massive costs....so the burden falls on the PAYE and GST lot while the benefit dependent harvest the handouts and the State sector works hard to ensure the benefit system remains as is....

by neco | 18th May 11, 9:31am 1305667867

So how much debt is Fonterra carrying to get a tax credit of $28m?

by steven | 18th May 11, 9:35am 1305668128

So they take on massive debt which in effect the interest on it is a private tax....and then pay virtually nil?

If that was true then no one would be crazy enough to go into a business venture like it.....

regards

by goldenfox | 18th May 11, 9:59am 1305669544

Unless you don't give a monkeys about an operating profit.

Most farmers - sheep, dairy, graphs etc would fail to make any commerical sense for operating free cash flows. No No, Steven its all about tax free capital gains.

Plus the kids all get student allowance at uni

by rp | 18th May 11, 9:26am 1305667579

excellent link thanks neco. This has to be investigated. If they are avoiding tax, than tax base has to broadened e.g. into land tax. Similarly the article about politicians having trusts, they need to be paying tax. If it can't be done with income taxes, bring on land and captial gains taxes.

by Nick | 18th May 11, 9:43am 1305668631

This is becoming one of the least attractive tarits in the NZ psyche - the ambition to take as much off everyone else as possible.

More taxation isn't good, it just destroys the country. Think what would happen if taxes were doubled - the country would shut down. So, a small tax increase has a small negative effect and conversely a small tax increase has a small positive effect.

The elephant in the room is that the government has no concept of keeping its books in order.

Trusts. Where does one start. Trusts pay tax at 33%, the same as individuals. Company tax is trending slightly lower, but that just encourages people to keep profits in a company for a longer. The only rational reason for trusts are as an ownership structure for something - whether a family company, bach, house etc. Helen Clark and co also made them compulsory for many people because of the changes to the relationship laws.

Don't worry - because people have trusts, it doesn't mean you aren't getting less than your share of their work.

by rp | 18th May 11, 10:05am 1305669922

Nick you only to have look at Greece to see what happens when large numbers of people avoid paying their fair share of tax, it ends in a shambles. If we have one sector of the economy paying tax - paye employees - and others like Dairy Farmers not paying, you have a fundamentally flawed system, which leads to harmful economic consequences. I'm not suggesting increasing tax, but changing how it is collected to make it fair for all.

With Trusts, the rate may be 33% but these have been a tax gimmick for years, where income is shifted into trusts to lower the people's total income and put them on lower rates. National has made this less attractive, but there's still people claiming WFF etc...because they have low incomes (yet they don't really because it's in trusts). bill English was a classic example claiming accomdation benefits with his Wellington hosue in a trust under his wife's name.

by steven | 18th May 11, 9:37am 1305668234

So we pay GST on everything because thats "fair" and "easiest".....but when it comes to PAYE or the equiv, no its fair they dont pay?

Bloody loony......

regards

by spirk | 18th May 11, 10:05am 1305669905

No its not fair. Their debts are so high they do not make muh profit overall. They are living on hope of the future. Still I suppose by popular demand we could put them out of their misery because they do noy pay any tax/make much overall profit. That would be very good for all the wage earners, because we could borrow more to fund their standard of living.

by Wolly | 18th May 11, 9:21am 1305667317

Is everyone ready for "bullshit day" tomorrow....it's more honest than calling it "budget day"...

by Gummy Bear Hero | 18th May 11, 9:59am 1305669549

Got the gummy bears at the ready , chairs all in place ....... And it'll be all eyes glued to the telly : ...................

The broadcast opens with a smokey room , and a group of well dressed old codgers , coughing over their Cuban cigars , and cackling as to how they're gonna divvie up the spoils of the land ............

...... Feck ! Hang on a tick , that was " The Godfather " wasn't it . ....... Shag it all , New Zealand is run and budgeted along the same lines , isn't it .

by Christov | 18th May 11, 10:14am 1305670442

I am afraid GBH......this group of individuals lack the finesse of any scene from the Godfather.........they will however consult with Fonterra / Fletchers/Freightways........ffffaaark.

by FCM | 18th May 11, 9:30am 1305667854

My mate has dairy farm..of course that makes no money and always has a massive loss ..but he also has Four rentals freehold..three are paid as cash in rent..three kids at private boarding school, two nice new 4x4 pajeros..and he pays less tax than me. But you get away with what the system lets you.

by Vera Fayed | 18th May 11, 9:48am 1305668915

If your mate is evading tax by not declaring cash rent paid then he is a criminal and there are hoards of IRD guys looking for him right now. If you wish to speed up the process and save taxpayer money get off the computer and onto the phone. If you are aware of his offending and benefit directly from his resulting largesse you are complicit in the crime. If he is accepting cash rent without issuing appropriate receipts he can also be charged and fined under the Residential Tenancies Act. As you are aware of the situation, unless you act, the blame lies not with the system but with your cowardice and complicity.

by FCM | 18th May 11, 10:16am 1305670588

everything goes through the audit process by a Chartered accountant....so there you go...the system allows it.

by Christov | 18th May 11, 10:24am 1305671045

You need to stop giving yourself one...it's not allowed on the points system ...even though you can.

by Vera Fayed | 18th May 11, 10:26am 1305671202

There is either evasion or not. If there is and its getting through the audit process then you can nab the corrupt accountant as well. Do it or stop moaning about it. Although in most cases where guys start a story with "I have a mate who......" investigation shows that in fact they don't actually have any mates.

by Muppet King | 18th May 11, 11:05am 1305673509

Theres tax evasion (which is illegal) or tax avoidance (perfectly legal), this sounds like a case of tax avoidance through clever account methods.

by Casual Observer | 18th May 11, 12:21pm 1305678105

everything goes through the audit process by a Chartered accountant

It is very rare for a chartered accountant to do an audit when doing financial accounts, these days FCM. Most go to considerable lengths to get you to sign off that they have no responsibility for the accuracy of the information. Quite different to what it was in my day when working in an accountants office. ;-)

by spirk | 18th May 11, 10:07am 1305670068

There is nothing in the system that allows that. Tell us what it is in the system that allows people to live high without making money. They are living off debt, and past profits

by Gummy Bear Hero | 18th May 11, 10:18am 1305670697

FCM's mate is probably talking bovine faecal matter ........ But no doubt he does legally get away with a helluva lot . Cobble together a shit-load of the bank's munny , a dairy farm , and a good accountant , and you're on your way to eye-popping riches .

............. I don't particularly care for cows , but would welcome suggestions as to how to adapt a rotary milking machine , as I'm thinking of going in to ferret farming .

by Bernard Hickey | 18th May 11, 5:40pm 1305697219

Gummy

Award for best use of a euphimism goes to you today.

An imaginative way to avoid swearing.

cheers

Bernard

by Christov | 18th May 11, 5:47pm 1305697632

First he's stealing my votes...... now my awards...whats your game Bernard.......are you trying to give me an inferiority complex.....Sheesh!

by Gummy Bear Hero | 19th May 11, 2:15am 1305728105

In the gracious , immortal words of our high priest of finance , Sir Michael Cullen , " I won , you lost , eat that , ... Christov ! " ............

........ Gummy has the Golden Gong of Euphimism ............rich prick !

[.... am I still good for the BBQ at your place next Saturday , Count ? ]

by Christov | 19th May 11, 12:09pm 1305763790

Of course Gummy......what say i cook you up some Geoduck..(what else for is closer to a rich prick)... and a little humble pie for myself......I though Big B would appreciate the journo joke...but lead balloons eh..?

by Christov | 18th May 11, 10:21am 1305670879

And that is ample demonstration FCM of why it is the law itself that needs review because if your story is accurate it displays "intent to defraud " as an acceptable position catered for under Tax Legislation.

By the way....this is your ..Mate..? your talking about is it...as your read pangs of a little discontentment with him/her.

by steven | 18th May 11, 9:33am 1305667988

http://www.stuff.co.nz/business/farming/5017285/Is-the-rural-sector-pay…

"The average dairy farmer pays less tax than a couple on the pension – raising questions about whether the sector touted as the backbone of the economy is paying its fair share."

Creative accounting at its finest....then the farmers and farmer's reps complain about too much being spent on public services? me thinks they suck.

regards

by rp | 18th May 11, 10:15am 1305670539

...agree, land tax is the answer

by Wolly | 18th May 11, 9:33am 1305668014

"The "no freedom camping" zones will include Lake Hawea to Makarora, Dublin Bay, Kingston to Wye Creek, Kettle Burn near Nevis Bluff, the Glenorchy Rd, the Mt Alfred to the Dart River bridge and Mt Aspiring Rd".....stuff

The message will get through make no mistake...."we do not want you in our backyard....bugger off....".

Anyone care to explain what "freedom camping" really means under these new bylaws popping up instead of toilet facilities!

I for one have a campervan with black and grey waste storage and I will park and sleep where I bloody well want and bugger the bloody council stormtroopers.

by KW John | 18th May 11, 10:08am 1305670131

You're not parked up at the end of my road are you Wally.... Great old truck rolled in overnight...

Met a young student the other day - he's sleeping in his van and studying - no pretence of hippiedom - just sound economic sense...

by Wolly | 18th May 11, 10:37am 1305671847

If it were me KWJ I'd have dropped in and asked you...the little game going on is all about porking the numbers that stay in the privately owned campsites....what better way than to have the bylaws do it for you....so will the campsite owners be paying to do the policing...will they?...not a chance in hell. Silly ratepayers will foot the bill and the poo police will become a permanent feature as will the poo and we all know why!

It is a stupid way to solve a problem caused by inadequate facilities and greedy tourist vehicle rental firms out to make a quick buck.

The message will reach overseas..."we want your money but we don't want to have to provide facilities for you"

Many MCA members today avoid large parts of NZ. We go where we are wanted and where we can dump. That's where we spend our cash on food and fuel and booze and stuff.

by Christov | 18th May 11, 11:04am 1305673486

Apparently Wolly there are a complete lack of fellow gypsies on this site.......my support to you on these matters.....and hope you prevail.

by KW John | 18th May 11, 11:15am 1305674111

Agreed. Makes us look introverted and unwelcoming...

Off to see if that lorry left poo everywhere.....freeloaders..... probably foreign.... odd accents....

by Wolly | 18th May 11, 9:59am 1305669586

Back to basics fellow fools....long ago the pollys opted to allow business costs to be a deduction on earnings so that tax would be paid on profits....and that wee scam grew into the bloated rorting that goes on today. The ability to deduct is a benefit by default....it encourages business owners to boost costs and rely on the capital gain untaxable return. That is now the core of the NZ economy. Those who failed to identify this and leap on the gravy train were left behind to pay the paye and gst which the pollys crafted into benefits and pork to sell for votes.

The gravy train is set to roll on and it will not be stopped. Either leap on or be left behind.

by Anon annoy anono | 18th May 11, 10:15am 1305670500

Of course they pay tax - GST and fuel tax - and a huge amount at that,

That is why its such a good tax - on consumption - no one can really rort

Reduce PAYE to flat 10% and GST up to 20%

Also GST on all property sales as well, and share trading etc etc etc

Dont need capital gains tax - just tax the change in value

by spirk | 18th May 11, 10:15am 1305670500

Correct Wolly. If we took away tax deductions for other sectors such as the retail sector they would need to pay tax on their gross sales, not their profit after the cost of their goods, rent, staff costs etc. We could fix the governemnt deficit

by Casual Observer | 18th May 11, 10:26am 1305671176

Something doesn't add up in the 17,244 figure.

Cow prices dropped quite significantly a few years ago e.g. last year mixed aged cows were valued at around $1400. Under the IRD National Standard Cost Scheme this allowed a number of herd owning farmers to claim very significant losses. Some of these losses will take more than one year to clear.

The full payout is not received in one income tax year. Dairy tax year runs 1 June to 31 May, but final payout for that period isn't received until the following October e.g. The taxable payout for most dairy farmers this season will be around $7.42 not the final payout.

Farmers can put funds in to the Farm Income Equalisation Scheme to spread their tax commitments. This has the effect of delaying tax pax payable in to a future tax year.

by Vera Fayed | 18th May 11, 10:34am 1305671648

Careful CO, around here they are not too keen on letting silly things like facts spoil a good story. Keep doing that and they might make you go play with the grownups.

by Christov | 18th May 11, 10:50am 1305672630

There appears nothing wrong with CO's facts Vera.....it's just feels better when their gleened from an independent source not assuming a defensive posture when such matters are raised.

The question I believe was do FONTERRA pay their fair share of TAX.....you will note fair is not in capitals but is the crucial point...........just soooo subjective..eh..?

by neco | 18th May 11, 10:39am 1305671952

Thanks CO, could you provide (estimate?) some figures that you think would be more accurate (average dairy farm tax + Fonterra tax)?

by Casual Observer | 18th May 11, 11:00am 1305673206

neco, it varies hugely so I think 'averages' is a bit moot. I know I pay in the very high five figures, but we don't own cows, whereas a mate of mine who does own cows and has similar production, has a considerable taxable loss. I am also aware of some farming companies who pay RWT instead of income tax so the whole thing is more complex than at first look.

As to Fonterra, I don't know. But at a guess the same tax breaks that are available to them would also be available to any other company. Open Country Dairy has been reported as making a loss this year. From memory it has made more losses than profits.

The Fonterra $28m credit is still less than that what was given to the makers of the Hobbitt. ;-)

by neco | 18th May 11, 11:27am 1305674875

Yep, would still be interesting to know though how Fonterra managed to achieve an operating loss over 3 1/2 years. I like your comment about the Hobbit, if I remember correctly when that came out nearly all of the bloggers here were all for it ;-) ;-)

by Vanderlei Luxemburgo | 18th May 11, 11:17am 1305674220

CO your reasoned,fact-based approach really gets in the way of a good lynching of the dairy sector. I hope you're happy ;-)

There are definitely a lot of distortions in the tax system overall and I think dairying is a great example of a system in need of an overhaul. Sky high prices that the banks benefit from, no CGT, lack of a decent system around water/waste, and an accountancy trade who love all this trickery....and so on.

But will this Govt do it? Would Labour? Who will? And what is the cost of them doing nothing?

by Casual Observer | 18th May 11, 11:54am 1305676483

VL - very happy. ;-)

neco - Fonterra have expanded in the last three years - the building of the Edendale drier for example that cost around $212million, was commissioned in 2009. I guess there would have been depreciation on that cost which could have been significant. It would be interesting to have a comparison of what the position is of the other 5 industry players - to keep it all in perspective.

One thing that hasn't been mentioned is that many farmers/sharemilkers/contract milkers would be able to access WFF. It would be quite feasible for a contract milker to make a profit of $100,000. As contract workers are usually in partnership as a couple they split the income, claim WFF and would pay virtually no tax. -This is no different to their urban counterparts.

The problem with overhauls VL is that they cast a wide net and there is usually collateral damage. One though that does look promising on the environment front, is that there is a push for consistency among Regional Councils on things like effluent management. Here's hoping some of them can put their parochialism aside and do what is right. I doubt no pollie wants to start to fiddle with an overhaul in the current economic climate. No one in any of the current lot have the balls to do it.

by Colin Riden | 18th May 11, 11:05am 1305673547

Always beware of averages. I suspect the 2009 tax year saw some major tax losses accummulated especially by the larger, more heavily leveraged and/or corporate dairy farms.

by meh | 18th May 11, 11:30am 1305675036

I think you'll find that a lot of farmers still have losses accumulated from earlier periods - drought of 05/06 - add to this the accumulation of debt for both capital and operating cashflow requirements, increased production costs and it makes sense that farmers balance sheets are stretched hence the requirement to repay debt. This will continue for a while longer too.

It also shows that economists and pollies have no idea of reality. We have been told every year for the past how many years that farmers increased sales/production/income will benefit the country because the farmers will be spending up large and this will flow through the rest of the economy. Once the banks have taken their portion first there is nothing left to share with the rest of the economy.

by Vanderlei Luxemburgo | 18th May 11, 10:38am 1305671880

It's an interesting story for sure...you guys have pretty much covered it, but for me the diamond in the turd is that genius Peter Dunne:

"Revenue Minister Peter Dunne said the figures released by Mr Nash did not raise any policy issues."

That's why he's there and you're here. Selective blindness based on political expediency.

by rp | 18th May 11, 10:50am 1305672626

so true. Some revenue minister!

by Christov | 18th May 11, 11:53am 1305676397

I think we need to know the cost of the Brash led ...Key commissioned task force to gain a better idea of Key's wasteful spending......

Did he not just dismiss it with a wave.....that's fairly flagrant is it not...!

So lemmmeesee now Key rolls Brash n needs him to shut up and go away ...so he commissions a bogus task force at taxpayer expense to solve what is little more than a PR inconvenience for himself....?

By the By RP and others go and have a look at the TAX Working Group 2010 report and you will see why the status quo remains despite the rhetoric in the report...

The writers alone give the clue.

by Vanderlei Luxemburgo | 18th May 11, 12:10pm 1305677417

yeah i've heard that those taskforce and commission types get between 1 and 2 grand a day. Can anybody confirm or deny what kind of remuneration they get?

by Les Rudd | 18th May 11, 12:36pm 1305679010

Comment on Cunliffe and Parker speaking to NZMEA:

"It should be no surprise that our Members reacted with some scepticism and the question and answer session was direct and robust. Collectively “all very nice but when you were in power” “what assurance is there you will follow through if you had power” was the thrust of the discussion. In talking to our members after the session, for the most part, they felt that the responses were confident, credible and genuine."

http://www.johnwalley.co.nz/150-talking_the_talk_election_2011.aspx

Cheers, Les.

www.mea.org.nz

by steven | 18th May 11, 12:47pm 1305679667

Do as I say and not as I do comes to mind.....Labour did nothing for 9 years, they didnt even tinker around the edges, slowly fixing the issues....now they have noticed something needs to be done, shock horror.....forgive me if I dont believe them...

What sucks is I feel like I have to vote for a bunch of losers, or a different bunch of losers.....but I guess voters are getting what they deserve.

regards

by steven | 18th May 11, 1:19pm 1305681550

the greek tragedy or is it farce? continues...

"German banks alone have €28 billion in Greek debt on their books. That does not include any swaps! A haircut such as that which would probably be required in a run-of-the-mill debt restructuring might be in the vicinity of 50% or more. Which would take €14 billion out of German banks' books. And many billions more out of other global banks. They would need to recapitalize, and some might not be able to do so.

But that’s not the worst part. Those same German banks carry €114.7 billion in Irish debt, and €146.8 billion in Spanish debt. That is still only the German banks. What British, French, Dutch and Spanish banks hide in their vaults at 100 cents on the dollar (or euro) is easily an order of magnitude more."

8><---

"Spain will soon, in all likelihood before the year, or even the summer, is over, require its first bail-out. That will take negotiations that will make the present Greece, Ireland and Portugal ones look like laid back sunny summer afternoon cocktail parties by the pool.

They can't do Spain. Spain will be certain to bring down banks, reputations, vast wealth and markets. But still, Spain, both the country and its banks, are in dire straits. And unless the millions of "overbuilt homes" it is home to are soon sold at (under the circumstances) impossibly high prices, the whip will come down on Madrid. And thereby on the international finance markets."

Nice one...

Note....."unless the millions of "overbuilt [spanish] homes" are soon sold at (under the circumstances) impossibly high prices" so the advocates for building our way out ignore the effects of trying to do so in other countries....

It didnt work for Spain.....or the USA and it wont work for us.

regards

by steven | 18th May 11, 1:23pm 1305681793

Is there any growth at all? maybe we are already in zombie deflation land.....

http://www.theglobeandmail.com/globe-investor/investment-ideas/features…

“It’s hard to identify uncertainties that could drive markets massively higher, but relatively easy to identify those that could drive them massively lower.

“Which means now is a wonderful time to have a very defensive investment posture.”

regards

by Wolly | 18th May 11, 2:04pm 1305684298

"The Budget will be a success if it presents a credible plan for fixing New Zealand's broken and stagnant economy, as Labour's economic policy package will do." so says cunliffe in the herald.....!

That's part of what he said.....this is what was rattling round his few grey cells at the time.....

""""I must not let on Labour caused the economy to become broken and stagnant....I must put some spin on my bullshit about Labour having a fabulous economic answer to the stagnant broken mess we left when Helen buggered off to New York....""""""

by Malarkey | 18th May 11, 2:07pm 1305684463

Yeah, because your beloved Nats are doing such a GREAT job, huh? Yeesh...!

by Wolly | 18th May 11, 2:12pm 1305684770

No, I think they have done a crap job because they sat on their arse for two years in hope of tweak and fiddle solving the massive pile of crap left by that pack of idiots called Labour.

by Wolly | 18th May 11, 2:19pm 1305685172

Trouble across the ditch......

“New information showing that mortgage insurers, which secure loans for banks and other lenders, do not always pay out the full amount when a loan falls over has forced ratings agency Fitch to move 54 tranches of residential mortgage backed securities (RMBS) from ratings watch ‘stable’ to ‘negative’.” moneymorning

by Matt S | 18th May 11, 3:34pm 1305689658

Geez there are a lot of pro tax people out and about today, what's with that? Presumably they all depend on the legalised theft of wealth from other people for all or part of their income, or to pay to have kids, or whatever. I must give it a try one day, give up my job and then expect other people to pay for my housing, food, wine, everything.

Yes that's it, what a great idea. And then I can come back on here and help demand even more theft from the few remaining private sector workers and businesses so that more people like me can live the easy life living on other peoples money.

In fact, now that I think of it why don't we all do it ? Lets see there are only 1.6 million private sector workers, and if we all became government employees ... oh wait ..