90 seconds at 9 am with BNZ

90 seconds at 9 am with BNZ: NZ rating left on negative outlook after budget; Moody's warns on NZ debt vulnerability; Budget forecast doubts

20th May 11, 8:39am by Bernard Hickey

Bernard Hickey details the key news overnight in 90 seconds at 9 am with Bank of New Zealand, including news overnight that Moody's has reaffirmed New Zealand's credit rating after the release of Budget 2011, but has warned again about New Zealand's vulnerability on its high foreign debt.

"While temporarily alleviated by the economic slowdown, the country's dependence on foreign saving remains a vulnerability," Moody's said in reaffirming New Zealand's Aaa rating.

"In the short term, borrowing conditions for the government are favorable, given the desire of some global investors to diversify their portfolios away from European and US assets," Moody's said.

"In addition, while household debt related to housing has been a major factor in the external borrowing by New Zealand banks, this should be less important in the coming few years as the composition of investment shifts away from housing to other sectors," it said.

Moody's also cautioned on commodity prices.

"As always, New Zealand's economic outlook is also related to commodity prices, which are at very high levels, and the assumption underlying the budget is that they will remain so, even if declining somewhat.," it said.

"Moody's believes that demand for New Zealand's commodities is likely to remain relatively strong, given the East Asian economic outlook, but also notes that this remains another potential vulnerability to the outlook."

Earlier Standard and Poor's said the Budget 2011 forecasts of a falling debt track had not changed its view that New Zealand's credit rating remains on outlook for downgrade. See Gareth Vaughan's article here on Standard and Poor's comments.

Meanwhile, some economists have questioned the government's forecast for economic growth, jobs growth and wage growth, saying continued deleveraging could lower economic growth over the longer term.

Elsewhere, IMF Managing Director Dominique Strauss-Kahn has resigned to fight allegations of sexual assault on a a New York hotel maid. He was granted bail this morning and will remain in New York on house arrest with an electronic device to monitor his movements. See more at New York Post.

The New Zealand was little moved by the Budget 2011.

No chart with that title exists.

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53 Comments

by Kunst | 20th May 11, 9:35am 1305840953

Lack of real, visionary leadership – more trouble.

I think the outcome of our economic future is very much depending on overseas events. Negative worldwide political, financial and climate change events have now a much greater sociological affect on the way we do business and the way we behave in our daily life’s.

Because these events are increasingly more severe and far reaching, our already unbalanced economy could literally come to a standstill.

by Roelof | 20th May 11, 9:36am 1305840995

Over the the last 30 yrs it has been credit growth that has driven economic growth in the western world.

That model for growth is at almost at its' limits.... Almost at the end game... ( maybe we will get one more cycle )

The National Govts, apparent, solution to our current problems .... is "growth "..... This growth will come about thru Credit expansion.....

I think they want to perpetuate the past.... they are NOT serious about true savings.. ( ie. deferred consumption ).... They want growth at any cost...AND THEN after that, they will address the structural imbalances...... BUT ... doing that will result in another "recession"... SO ... they are not really that serious about addressing the critical issues... ( they mesmerize us by talking the talk ..thou )

BUT..... until the structural imbalances are addressed..... the only way any western economy can grow is thru massive credit expansion.... which just pushes a bigger problem down the road... ( in that regard.. it is a ponzi scheme of ever increasing Total debt )....

In a world of overcapacity and muted consumer demand... National are hoping for a lot, in terms of NZs' ability to grow exports...

It is a shame, in my view, that National have squandered an opportunity for genuine change.... over the last 3 yrs.

Cheers Roelof

by neco | 20th May 11, 10:04am 1305842695

All true. The whole purpose of this budget to avoid a ratings downgrade so that we can KEEP ON BORROWING under favourable terms. Maybe a ratings downgrade is what we need in order to get any sort of meaningful reform. There, I've gone and said it...

by Gummy Bear Hero | 20th May 11, 9:42am 1305841320

As I reported yesterday , LikedIn ( NYSE : LNKD ) made its debut yesterday , and the limited number of $US 45 shares immediately rocketed to $ 84 . During trading they reached a high of $ 112 , before closing the day at $US 94.25 .......... A 109 % increase on debut !

........ Now some may be septical , because the company only had $US 243 in revenues last year , but sports a $US 9 billion market cap . This is not a traditional bricks and mortar stock . These guys are breaking the old rules and creating a new paradigm . The world is changing . The old metrics no longer apply ...........

Feck ! ...... Is it 1999 all over again ?

by neco | 20th May 11, 9:53am 1305842027

Is it 1999 all over again? Hell yeah. You might even call it "irrational exuberance".

http://blogs.wsj.com/deals/2011/05/19/3-reasons-to-fear-the-linkedin-ipo/

http://blogs.wsj.com/marketbeat/2011/05/19/linkedins-crazy-ipo-thank-ben-bernanke/

You know something ain't right when even the MSM are scratching their heads.

by Neville C | 20th May 11, 9:53am 1305842039

Of course its different.

In 1999 the Dot com listings had no revenue and no income!!

by michael | 20th May 11, 10:00am 1305842444

GBH, that is a true weird one, Another tech bubble with the social network sites.

by MikeM | 20th May 11, 10:05am 1305842701

Yes you really have to question those growth and job forecasts. Will the dairy sector continue to deleverage?

It's a big gamble to suggest they won't.

I'm thinking it's a 50/50 chance that next year will be another dud for the economy.

by Les Rudd | 20th May 11, 10:08am 1305842922

NZMEA says - 'Balancing the books but not the economy'

http://www.realeconomy.co.nz/172-balancing_the_books_but_not_th.aspx

“Rebalancing rhetoric is almost a fixture in New Zealand politics, it is effective rebalancing action that is absent. We have a one-dimensional text book on monetary policy driving a volatile and overvalued kiwi dollar and fiscal policy that rewards investment in assets, not activity in the tradeable sector. Until that is fixed high growth will be just be a forecast not a reality.”

“Cost cutting is part of solving the deficit problem but earning more should be a priority.”

To achieve higher growth the Government needs to:

Stabilise the high and volatile New Zealand dollar;
Reform the tax system to promote investment in the tradable sector over speculative investment in land and buildings; and
Introduce productive investment incentives.

“Much more effort in these three areas would start to address New Zealand’s economic underperformance,”

" .... tinkering will not get the job done.”

And still Bill wants to borrow to rebuild ChCh when the RB could simply print what we need for the job, eh Iain, Raf.

And by the way, well said Stuart Nash and Cactus Kate, you've brought some much needed reality to how we should be viewing farming's input to the whole economy. What a disappointment.

Cheers, Les.

www.mea.org.nz

by Casual Observer | 20th May 11, 10:23am 1305843786

Key said yesterday that 13% pay 51% of the tax. I suggest that there are many others out there who are not farmers, who are not paying their 'fair share', Les. Do you?

by Les Rudd | 20th May 11, 10:51am 1305845517

Hi Marie - indeed, that's a well known stat, was trotted out many times at the TWG conference - but it didn't stop the majority of that working group recoginising that our tax system is inadequate; has been a major factor in unbalancing our economy and that broading the tax base with more effective taxation of land and property would benefit all NZ, especially by facilitating a lower uniform rate - maybe even a few of that 13%.

Re. your question, why do you ask? Sorry, why do you, feel, you need to ask? How does that question support the point you are trying to make? However, agree, there will be many other than farmers out there who advantage themselves of the same regs that also rort and avoid, as some of your peers, evidently, do. Answer to that = change the rules and you'd not have to worry about others paying a fair share.

So, up for signing a petition for a land-tax yet?

Top o' d' mornin' t' ye, St Pat.

by Casual Observer | 20th May 11, 11:50am 1305849006

Show me the detail of the land tax proposal, St Pat. I agree our tax system is inadequate but it is about how much collateral damage is acceptable in order to hit the few that really use the system. Good to see them hitting the holiday home rort. It might be small pennies, but if more of this happens then it may start over time to change peoples attitudes to paying tax.

The question was rhetorical. I don't have a lot of time for people who slag off one sector of our community for legally using tax mechanisms, while at the time using those same mechanisms themselves. Not that I am saying you do. :-)

Playing devil's advocate here:

You said on another thread the system could be configured to avoid that problem and we'd have different rates per asset type, land type and accommodation of income fluctuation. So when a business makes a loss there would be little or no tax to pay - sort of similar to what we have now.

Why should someone who lives in a $2m home pay less land tax than a farmer or lifestyler living on a $2m property? (Assuming the land value is the same). It's a bit like owning an expensive car - if you can afford to buy it, you should be able to afford the costs that go with it.

Have you spoken to FoMA (Federation of Maori Authorities) about your land tax? As one of the, if not the, biggest owners of land in NZ my guess is that if you didn't get them onside then it would be a no goer.

by Les Rudd | 20th May 11, 12:13pm 1305850438

CO - have a look around this: http://www.victoria.ac.nz/sacl/cagtr/pdf/tax-report-website.pdf Esp section 3.3. Have not read it for long while, but the discussion/presentation on the day seemed very plausible. Around "accomodation of income fluctuation", I was thinking of a system of advancing and deffering payments, kind of, but liability would not be cancelled. Re. the 2M home comparison, I think if you look thorugh the detail of that report (as I said I haven't for a while and don't have time to) it should carry some proposal (as presented on the conference day) that have thresholds below which farmers wouldn't pay, or pay less. What the farmer lived in on his 2M station would be taxed same as a 2M home in Remmers, but the remainder of the land differently. (I think that should be in the report, I seem to recall similar being discussed on the day, long time ago now.) Re. FoMA, no matter who it is, it requires a robust selling job to show the wider benefits - but that doesn't happen because those that could open and lead the debate (polys) simply don't have the will to and close the debate down as soon as they can with the, 'there is no alternative' objection. Cheers, Les.

by Casual Observer | 20th May 11, 12:54pm 1305852876

Thks for the link Les :-)

by Kate | 20th May 11, 12:23pm 1305850996

IRD's figures showed agriculture, including forestry and fishing, paid NZ$319 million in tax in 2009. Mining paid NZ$486 million, while industry overall paid NZ$9.7 billion tax and individuals paid NZ$23 billion in personal tax.

So 51% of $23billion = (roughly) $12billion.

Paid for by 13% of all individual taxpayers (3.2million* 13%) = 400,000 individuals.

An average tax bill of $300,000 per individual, or roughly the tax paid on a million dollar income (and of course that income should be from both salary and investments).

But then our wealthiest don't necessarily claim to be as wealthy as they actually are (for tax purposes, that is!);

http://tvnz.co.nz/business-news/only-half-100-richest-people-paying-top-tax-3336599

And of course neither do they likely pay any tax on capital gains from property investment/divestment.

Imagine what the tax collected might be if indeed there weren't such a wealth (pun intended) of legal tax avoidance measures in this country.

All these such statistics remind us of are that the gap between the middle class and the wealthy in NZ is getting larger and larger.

Key's use of such stats will be to his own perile, I believe. They simply remind us of the erosion of equity in our current society.

by neco | 20th May 11, 2:22pm 1305858134

think you might have an extra 0 there Kate $12b/400k = $30k

by Kate | 20th May 11, 3:04pm 1305860654

I think you're right! Can't be though, can it?

So the average tax paid by our top 15% of earners is only $30,000 pa?

That's roughly equal to the tax paid on a $100K income?

Something seems amiss here. I'd have expected a much greater % than 15% of NZers to be earning more than $100K pa. And of course amongst these 400,000 individuals, there is likely a few hundred that are paying 3-4 times the average for that group... putting even fewer in the $100K and above income bracket.

It just doesn't seem possible - wages simply cannot be that low, can they?

No wonder we have problems retaining our qualified professionals.

by Casual Observer | 20th May 11, 3:15pm 1305861344

Kate, isn't the figure the top 10% earn over $70,000? I can't remember where I saw that but I thought that was the figure.

by Kate | 20th May 11, 3:38pm 1305862686

Hopefully it can't be that low.

Here's an interesting exercise.

From www.seek.co.nz

All New Zealand jobs paying >$100K = 3,139 (out of total 15,476), or 20% of all jobs.

All Australia jobs paying >$100K = 45,618 (out of total 146,166), or 31% of all jobs.

by David B | 20th May 11, 4:09pm 1305864552

Who pays income tax and how much?

From the 2011 budget – facts for taxpayers

Annual individual Number % of

people (000) pop % of total tax paid

Taxable income ($)

Zero 244 7 0

1-10,000 433 13 1

10,001-20,000 700 21 5

20,001-30,000 497 15 7

30,001-40,000 330 10 7

40,001-50,000 315 9 10

50,001-60,000 223 7 9

60,001-70,000 176 5 10

70,001-80,000 119 3 8

80,001-90,000 89 3 7

90,001-100,000 52 2 5

100,001-150,000 106 3 14

150,000+ 58 2 17

So that is 5% of the top income earners pay 31% of New Zealand’s income tax.

Whereas the lowest 41% of the population pays only 6%.

And the Labour party and Greens would tell you we have an unfair tax system in New Zealand where the ‘rich’ are not pulling their weight and profiting at the expense of the poor.

Bullshit!

by Kate | 20th May 11, 4:11pm 1305864665

But David, how would you have the lowest paid pay any more? Clearly, if you earn less than $30,000pa - you are not on a living wage anyway!

:-)

by David B | 20th May 11, 4:21pm 1305865292

I agree that is a very low wage, and I certainly wouldn't want people on such low incomes to be paying any more in tax. The point I'm trying to make is that the claim that the high paid are not pulling their income tax weight is simply not born out by the facts. The realty is that a fairly small number of New Zealanders are actually supporting a very large number, and they need to be given their dues for that and maybe shown a little bit more gratitude and respect for it.

Robbing Peter to pay Paul does not, an economic cake, grow. The focus now in New Zealand needs to be on economic growth and then wage growth. Not on silly arguments like land tax or CGT. These are distractions that are profoundly unhelpful (and thoroughly misleading) to improving the lot of everybody in this country.

by Kate | 20th May 11, 9:01pm 1305882061

I agree with that sentiment (robbing peter to pay paul is indeed futile) and presently we are robbing (in the main) the fruits of peter's labour to pay paul a living wage (by way of lower taxes and subsidies).

So, in terms of taxation I do not favour the emphasis in NZ on taxing labour and profit (profit traditionally being the fruits of labour).

Tax consumption, resource depletion (i.e. user pays), inefficient use of capital (which translates to a capital gains tax for that part of assets that are not improved in the making of those gains, i.e. bare/non-productive land), gains made on speculative transactions (such as FX trades) and so on.

I guess what I'm saying is we do need to have a complete overhaul of both tax and welfare systems. So, trying to shut down that dialogue in favour of just talking about 'how to grow' an economy (at a time when ongoing growth itself is a bit unrealistic) isn't going to make us a progressive society (i.e. one which improves the lot of everybody).

We cannot pin our future on business as usual "hopes" for "growth".

by Casual Observer | 20th May 11, 10:34pm 1305887693

U are assuming that those on $30k or less are fulltime. I have several friends who earn less than this -as they are part time workers working 3 days a week or less - by choice.

by Kate | 20th May 11, 11:02pm 1305889329

regardless whether they are full or part time, $30K in income isn't a living wage - and so there must be a supplementary or additional income - or they have chosen to be very poor.

by Casual Observer | 21st May 11, 7:42am 1305920551

For my mates they all have partners earning good money. My mates work to combat 'empty nest' syndrome and use their income to fund their overseas trips. Kids working after school e.g.paper lads and ladesses don't require a >$30k wage to live, Kate. It is dangerous to assume that everyone who works actually does so because of financial need, for some it is to fund wants, not needs.

by Trolleyboy | 21st May 11, 8:12am 1305922379

That's what retail pays, if you have a bit of experience. New workers get less.

by speckles | 21st May 11, 9:10am 1305925850

the rich self employed in certain sectors are not paying their share, this reflects the higher paid wage slaves are paying the bill.

by Casual Observer | 21st May 11, 9:53am 1305928407

This doesn't help

http://www.nzherald.co.nz/rugby-world-cup-2011/news/article.cfm?c_id=52…

by David B | 20th May 11, 3:27pm 1305862053

Ah! Welcome to the real world, Kate. It's good to see you're finally walking out of the fog and haze of unhappy socialism and you can now see the poverty that it creates!

by Kate | 20th May 11, 3:42pm 1305862926

I don't get your meaning, David B. What this more indicates to me is that our private sector (i.e. the high end wage payers) are screwing the workers with wages being very low even with respect to the high end/tertiary qualified professionals.

by Gummy Bear Hero | 20th May 11, 3:49pm 1305863380

As opposed to the Public Sector where incompetent uneducated bozos command a bloody good salary , plus perks , and can never be sacked . ....... Yup , socialism pays !

by Kate | 20th May 11, 4:00pm 1305864014

I accept its pretty common to get above or near a $100K+ salary in government employ (and that goes for local as well as central). But if we accept that as a valid proposition - why does it seem the private sector has fallen behind the public one? It's not as if inflation varies between these two sectors - and they compete in the same market. One can only imagine that the private sector labour market has (over time) been reducing the salaries it pays for its highly qualified professionals?

by Casual Observer | 20th May 11, 4:32pm 1305865932

Perhaps Kate it may have somehting to do with the cost plus mentality of local and central government - they have the ability to increase income by increasing rates and tax. Wakey wakey.

The private sector has only a limited ability, due to the competitive nature of private enterprise, to increase their prices. I have seen rate rises in excess of 100% over 6yrs in the past - no way can that be accounted for by inflation.

Highly qualified professionals who can cut the mustard in private enterprise usually own or are in partnership in the business they work in.

by Kate | 20th May 11, 9:10pm 1305882602

CO, I think its a bit of a long bow to say the private sector is going backwards. Larger corporations in particular are posting record profits in many sectors. And I do agree that many highly qual professionals do own or are in partnership in the businesses they are in - and most (lawyers, accountants, consultants etc.) are earning well in excess of $200K per annum - but they must be filtering these incomes through Trusts and paying alot less tax on their earnings if that "average" tax paid from the top 15% is only $30K.

I don't know if its me who needs to wakey, wakey. :-)

by speckles | 21st May 11, 9:14am 1305926098

It is actually crowding out of activity by the Government sector, the average senior seasoned professional I deal with in NZ would earn 200-250k who is employed, the problem is activity is such that there is less and less of them.

by neco | 20th May 11, 4:05pm 1305864337

Kate where does the stat top 13% pay 51% of income tax take come from?

by Kate | 20th May 11, 4:13pm 1305864787

From here;

by Casual Observer | 20 May 11, 10:23am Key said yesterday that 13% pay 51% of the tax. I suggest that there are many others out there who are not farmers, who are not paying their 'fair share', Les. Do you?

by neco | 20th May 11, 4:15pm 1305864925

Thanks, also got it from last 5 rows of David B's post above

by Gummy Bear Hero | 20th May 11, 12:02pm 1305849764

Sir Paul Callaghan and Shamubeel Eaqub gave their views on yesterday's budget , this morning on Radio National , with Katherine Ryan . Pop over to the Radio National website for the 16 minute podcast .......

..... Highly recommended !

by Les Rudd | 20th May 11, 1:04pm 1305853488

Dismal eh Roger. Have look at this:

http://www.johnwalley.co.nz/151-slip_sliding_away.aspx

"Any current account deficit effectively demonstrates we are likely on a trend to greater pain and more cuts as history shows us unable to increase earnings. This will not change until the policy framework changes and we effectively control domestic inflation and the value of the New Zealand dollar via capital controls or some form of foreign exchange transaction taxation."

by OMG | 20th May 11, 12:56pm 1305852987

Yep, there's a 170,000 jobs ------ in Australia.

by Gummy Bear Hero | 20th May 11, 1:00pm 1305853248

In the excitement , hoopla and celebration of Mild Bill's budget yesterday , we forgot aboot Ryman Healthcare ! ........... Ryman ( NZX : RYM ) posted a 17 % increase in their underlying profit for the year to March 31 , of $NZ 72 million ............

....... kind of ironic that a private enterprise Kiwi success story is creating services and investor wealth , plodding along unheralded ....... whilst the nation is focused intently upon how some bureaucratic nit-wits are gonna spend 50 % of the nation's wealth , mostly into unproductive welfare programmes .

We are stuffed !

by Gareth Vaughan | 20th May 11, 1:14pm 1305854082

But aren't those old folks village operators just property companies in disguise?

by Gummy Bear Hero | 20th May 11, 1:53pm 1305856430

Tch tch ! ........ Such cynicism .......... Gareth , you have been hanging around Bernard Hickey and the venerable Wolly far too long !!!

by Bernard Hickey | 20th May 11, 6:42pm 1305873756

hear hear Gareth!

cheers

Bernard

by neco | 20th May 11, 2:18pm 1305857882

And who's paying for the pensions that are used to pay for the services of this "private enterprise"? ;-)

by Colin Riden | 20th May 11, 2:18pm 1305857928

Don't worry GBH - the budget appears to be working on a 15% increase in company profits being the average for next year - 17% increases won't stand out at all.

http://www.interest.co.nz/news/53562/budget-2011-summary-all-tax-collec…

by Christov | 20th May 11, 1:32pm 1305855146

Just letting the ink dry on my latest aquisition....200 head of virtual dairy cows......while milk production is at a virtual standstill...due to nearly all of the stock virtually dying in the last 24 hrs as a result of pixel pasture failure.....I am now operating at a massive loss and should have my tax bill virtually down to $1058.00 by nightfall.

Thanks Fonterra you showed me the way........

by Gummy Bear Hero | 20th May 11, 2:21pm 1305858104

Stop the presses , ed ! We have good news for all of you who're worried about predictions that the world will end tomorrow in a tumultuous apocalypse , at 6 p.m. .....

......All bollocks , a pile of shite ........ My good buddies at ediblefellowship.com inform me that the world ends on October 21'st instead ! ......

............ What begins at 6 p.m. Saturday is 5 months of unremitting torment , earthquakes bigger than Ken Ring's predictions .... The meteors to destroy the planet don't arrive 21 / 10 / 11 , at 6 p.m. ......

....... and yes , luckily , God has factored in daylight-saving times , and will adjust his timing accordingly ......

Whew ! .Bloody good thing that , I am so relieved ......

by Nicholas Arrand | 20th May 11, 2:26pm 1305858372

Is this where the news came from, Roger ?!

http://www.tomscott.com/osama/#wfE01uB_YI0

by Gummy Bear Hero | 20th May 11, 2:49pm 1305859743

Brilliant , St. Nick ! ........ That's awesome . ... Imagine if the last thing you saw on telly before the Navy Seals blew your brains out was Hickey ........ Flipping heck , Allah !

........ Someone suggested that it'd be a fitting punishment if Osama Bin Laden's body was preserved in a huge bottle of alcohol , and then placed at Ground-Zero in NYC , with a pork chop stuffed into his mouth , and with a fire-man's axe rammed up his arse .

by Bernard Hickey | 20th May 11, 6:45pm 1305873940

Egads. Hilarious!. No wonder he rushed at the guns...and kept all that illicit material under the bed.

cheers

Bernard