90 seconds at 9 am: Tax haven gives up defending MNCs

Trump withdraws from TPP; OECD gets Bermuda on board to fight BEPS; China worried about land use changes; Sydney house prices jump; UST 10yr yield at 2.40%; oil down, gold unchanged; NZ$1 = 72.1 US¢, TWI-5 = 77.5

24th Jan 17, 7:37am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news the tax noose is tightening on multinational profit-shifting strategies.

But first, President Trump today signed an executive order formally withdrawing the United States from the 12-nation Trans-Pacific Partnership trade deal, following through on a promise from his campaign last year. The US has also announced a 'renegotiation' of NAFTA. Meanwhile, Australia and Japan are pushing ahead with ratification of the TPP. NZ has already done so. It seems there is a determination to do this trade deal, even without the US involvement.

The OECD says tax-haven Bermuda is among a handful of new nations that have finally joined the crackdown on multinationals' tax avoidance strategies, known as Base Erosion and Profit Shifting.

China announced that its arable land area has reduced to 133 mln hectares and that continues to shrink. Despite record grain yields in 2015, overall output shrank after a run of 12 consecutive gains. They are worried and are to set "the most stringent land conservation system ... to protect arable land like a giant panda".

By the end of 2016, Sydney’s median house price climbed more than +10% to a record AU$1,123,991 (NZ$1.2 mln.). The strongest quarterly result over the year was December, with prices up +4.7 per cent in three months. This is a turnaround from a year ago when prices were falling. Momentum from interest rate cuts in May and August and a resurgence of investor activity is said to be driving the Sydney market. Affordability issues are now a top priority for the new NSW Premier.

And in Western Australia, the signing a state agreement with a The Balla Balla Infrastructure Group, to construct a new iron ore export port between Karratha and Port Hedland and construct a 162 km railway linking stranded iron ore deposits in the central Pilbara, is a AU$3 bln project majority owned by NZ's Todd Group.

In New York, the UST 10yr yield actually has fallen sharply today as Wall Street gets the jitters over the protectionist prospects of the new US Administration. It is now at 2.40%. That fall will probably resonate in local markets today

Oil prices are a little lower today, down to just over US$52.50 for the US benchmark, while the Brent benchmark is now just on US$55 a barrel. But notice how NZ pump prices are now over $2/L for U91.

The gold price is unchanged at US$1,210/oz

The New Zealand dollar has moved slightly higher overnight and will open at 72.1 US¢. Actually, against the US dollar, we are now as high as we have been since the November OCR review. On the cross rates we are at 95.4 AU¢, and against the euro at 67.2 euro cents. The NZ TWI-5 index is at 77.5.

If you want to catch up with all the changes on yesterday, we have an update here.

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

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55 Comments

by Ted Stanton | 24th Jan 17, 8:10am 1485198613

Sydney house price record 1.2 million and 4.2% rise in December suggests Auckland will likely follow suite.
Sydney has the same bank restrictions, lack of Chinese buyers plus a massive Stamp duty to pay when purchasing property yet it has made huge price gains in December.

February 70,000 Immigrants and pent up buyers will hit the Auckland housing market so the only way is up.

by scarfie | 24th Jan 17, 9:51am 1485204705

I think David you think about charging you for advertising space.

Perhaps also you are unfamiliar with the principle of unearned income, or incapable of understanding it. That is why you come here completely unabashed spouting your tripe here. Merchanting (of houses in your instance) is firmly in the unearned income camp. There is little difference morally between unearnt income and theft.

by Roger Witherspoon | 24th Jan 17, 9:32am 1485203578

There is little different morally between unearnt income and theft

Interesting topic that one. Aren't speculators supposed to "provide liquidity" which is held to be Very Good Thing? Presumably for bankers.

Seriously though, my sense is that speculators do in fact fulfill some useful, even crucial, functions in society and that "unearned income" is often a good thing. Is it like immigration where there are important issues we have failed to clarify, some good, some bad? Does our intellectual lazyness mean we aid the bad aspects at the expense of the good?

by the Joneses | 24th Jan 17, 9:42am 1485204141

OK, can you please help lead the way out of this intellectual laziness, and outline just one crucial and positive function property speculators fulfill in society?

by Roger Witherspoon | 24th Jan 17, 11:32am 1485210760

That's why I asked the question. However, your criticism is valid, so here goes:

Someone has to own the assets in society, and we are by and large more comfortable with individual and family ownership than either corporate or government ownership. We are rightly suspicious of corporate or government ownership because there is no one individual who can be held to account when they misbehave, and our experience is corporates and governments are very clever and sophisticated at misbehaving. Someone with skin in the game, who suffers personally for mistakes, is seen as more trustworthy than a slimy paid professional who can just say "No one saw it coming" and carry on getting paid as before.

It seems to me that the ability to allocate capital wisely is a very hard thing to learn. Everyone overestimates their own ability. So, our society has evolved a mechanism that gives more capital to those individuals who have shown themselves to be better at allocating capital. The key difference is between "those individuals who have shown themselves to be better at allocating capital" and "those who think they know best".

The trouble is, the mechanism appears to be faulty and rewards those who cheat in some clever way over those who don't. What to do?

Does that help?

by Ted Stanton | 24th Jan 17, 10:56am 1485208583

Speculators add to house equity for small business to leverage off to grow and add staff which has led plenty of employment which is great for NZ.

by mfd | 24th Jan 17, 11:02am 1485208972

If houses were more affordable then we'd all have more money to invest in the productive economy and support small businesses. The more expensive houses get, the more money is funneled into interest payments.

by Roger Witherspoon | 24th Jan 17, 11:31am 1485210684

This is true enough Ted. Household equity allows people to start their own business. Good one.

Higher house prices also mean that workers need more pay, so it puts pressure on employers, selecting for those who can afford higher pay.

by scarfie | 24th Jan 17, 9:58am 1485205104

I remain to be convinced speculators perform any useful function. Sometimes it is about who controls the narrative. Swap the term speculator for gambler and see if that resonates as useful.

by Neven911 | 24th Jan 17, 10:34am 1485207278

Scarfie, It really depends what the speculator in speculating in, A speculator in a tech startup is called an entrepeneur and applauded. My issue is that houses, shelter a basic human right, is classed like any other investment class, hence we invite people with capital into this country and call them entrepreneurs and put no restrictions on where they "invest' this capital, so you can hardly blame them (or locals with capital) that they would go for a sure bet. The fundamental issue is that houses are different and the state should acknowledge this in all contexts, which they don't, so if you clamp down via lending rules you favour the cashed up wealthy

by scarfie | 24th Jan 17, 10:53am 1485208418

The speculation in a tech start up might sound good on the face of it, and hell I am still looking for one. But the issue there is the motivation is profit for that individual investor, rather than the best product for society. There is sometimes a great chasm between commercial success and usefulness.

You comment makes this a valuable discussion :-)

by Roger Witherspoon | 24th Jan 17, 11:42am 1485211361

You touch on one of the issues I used to have difficulty with when I first got into business. The objective is to find something where there is no conflict, where your product is a benefit to society and profitable to you. That is the challenge. Sales should not be a con job, the objective is that both you and the customer are better off after the transaction.

by Neven911 | 24th Jan 17, 11:54am 1485212092

Roger, These are fine ideals and I once had them, The issue is you are up against pycopathic lying venal rats and they are very successful (if you measure success in billions).

by Roger Witherspoon | 24th Jan 17, 12:12pm 1485213161

Nice one Neven. Actually, I think most business transactions are honest, but as you say, the liars and cheats are the problem. The difference seemed to be that where both sides are well informed and act freely then all is well, for the most part. The problems arise where there is coercion and lack of choice or one side is less well informed. I guess it's a bit like speeding, the ones who drive at 120k in a 50k zone make life difficult for those of us that drive at 60k.

by Andrewj | 24th Jan 17, 11:47am 1485211623

If you had just given up on your 'idea' and bought houses, you would be rich now with half the work , no tax and not a lot of brains required to run with the crowd.

by scarfie | 24th Jan 17, 6:10pm 1485234602

It is certainly so, if I could be bothered with a normal job. But in another five years it may well be different, will email you my latest development.

by kiwichas | 24th Jan 17, 9:00pm 1485244838

But would you be happy Andrew??

by Andrewj | 24th Jan 17, 9:40pm 1485247208

No, I need to do things with my hands and only need the one house.

by Neven911 | 24th Jan 17, 11:49am 1485211760

The basis of capitalism is that effort and capital should be rewarded hence this rhetoric of greedy speculators is disingenuous unless you are a hardcore marxist as greed is the pillar of capitalism. What we are going thru now I feel is the backlash against neoliberal driven globalisation which has removed protection of the non capital rich classes for a few baubles. This is a good read on the bite back of the great unwashed in the US The hate that dare not speak its name
Also why I discound the rhetoric as to the left will recover as they are as much to blame, it doesn't matter how many celebrity endorsements they get.

by murray86 | 24th Jan 17, 12:12pm 1485213120

Neven, I largely agree with your perspective, and Roger's. The issue here about "unearned income" is that while property investors are profiting hugely while doing bugger all, people living in their own homes are also being lumbered with this threat. Gareth Morgan is one in favour of taxing home owners for that cost (the virtual rent on their property). This would drive many home owners out of their properties as they struggle to get by as it is, making things much worse for them.

Balance is required as identified here, speculators in property should be actively discouraged if not prevented as they only increase the cost of accommodation without creating any real benefit. as to a social service provided by land lords, complete, unadulterated hogwash!

by Roger Witherspoon | 24th Jan 17, 1:11pm 1485216675

Every capital market has two sorts of participants; the producers and consumers on the one hand; and the speculators on the other. The consumers and producers tend to settle on a price that works for them and that becomes seen as fair; they tend to an equilibrium price. The speculators chase momentum, so they buy if prices are going up, and sell if prices are going down; they push prices as far as they will go.

Usually, when prices go up to significantly higher levels then the producers become very profitable and start putting in more capacity. If prices stay high they make even more profit and put in even more capacity. Eventually supply overtakes demand and far too much is produced and prices crash. Plenty of examples in NZ of this, kiwifruit, apples, grapes, etc.

Houses ought to follow a similar path. Higher prices ought to cause lots of new building; demolition of damp, cold chicken shack type housing and replacement with bright, warm, dry, spacious new houses and apartments. Prices should stay high until there is a surplus of good housing at unaffordable prices. Is this what is happening, or is something else going on?

by murray86 | 24th Jan 17, 3:09pm 1485223748

Something else Rog. Speculators looking for easy money. Those "damp, cold chicken shack" are not being demolished by speculators, they're buying them up renting them out to people who can't afford a better choice, and making a killing. this is now happening in the regions as AK capital gain has run out of steam. Foreign investors are buying up better quality homes and sitting on them, many of them empty, effectively land banking.

As to prices should be staying high - RUBBISH! For housing to become affordable for ordinary Kiwis again, prices (and rents) need to fall by at least two thirds. Any one who squeals at this suggestion is over invested in the property market. Wealth tied up in ones home is relative (and paper only), and it will cost more to upgrade than much cheaper houses will.

by Roger Witherspoon | 24th Jan 17, 3:51pm 1485226306

I think you misunderstood my meaning, I was just wondering if you get the same thing we got with grapes and wine. Years of shortage and new planting finishing in Savalanche and cheap wine. So do we get a few thousand apartments dumped on the market in Auckland when Aussie picks up and the inflow of kiwis becomes an outflow again? Say, in three years time, with all those empty land banked houses put up for sale at the same time.

by Doris | 24th Jan 17, 8:18am 1485199103

If you're right surely that would be the end of National.

by Andrewj | 24th Jan 17, 8:45am 1485200749

With concepts like wealth effects (the illusion of being rich, when you are not) and propensity to consume, our leaders actually believe they can sustain economic prosperity without proper wealth creation. The bubbles depicted above are obvious for all to see. The idea that you can be rich only if your neighbor feel rich and your neighbor can be rich only if you feel rich is so preposterous and ingenuous that it is actually hard to comprehend that educated people seriously believe in such notions. Do Janet Yellen really believe she can move rates gradually (we said gradually) higher without popping yet another bubble? It must per definition pop because it cannot sustain itself without being able to bid on the shrinking pie of wealth. Higher rates will make it impossible for these bubbles to continue fund themselves whilst refraining from hiking rates means the pie will shrink more and more as wealth creators are increasingly robbed of their funding. The future path is thus laid down for us and there is nothing we can do at this juncture to avoid the consequences of our past folly.
http://bawerk.net/2016/10/06/do-our-money-managers-really-believe-this-…

by Stephen Hulme | 24th Jan 17, 8:52am 1485201174

"Western Australia is ranked as the best jurisdiction in the world for mining industry investment - this ranking is the direct result of the Liberal National Government providing the right environment to encourage the continued development of our resources industry," Mr Marmion said

Without a doubt they are price takers. Some would say it's a foreign extractor's bonanza for established price makers.

The world’s biggest mining companies producing iron ore from Australia aren’t paying their fair share in taxes, according to a lawmaker who wants a 20-fold raise in a state levy that’s been unchanged since the 1960s and the era of imperial pounds, shillings and pence.

The proposal has “overwhelming” support and Rio Tinto Group and BHP Billiton Ltd.’s objections don’t stack up, according to Brendon Grylls, Western Australia’s Nationals party leader. Grylls, a farmer and one-time baker turned politician, is championing the drive to raise the lease rental payment, levied on ore from the two companies, to A$5 a metric ton ($3.68) from 25 Australian cents

“It is quite clear to me that Western Australia is not receiving a fair recompense for making our iron ore available,” Grylls said in an interview from his office in West Perth on Tuesday. “It was 2 and 6 converted to 25 cents when decimalization came in.” Read more

by Cowpat | 24th Jan 17, 9:23am 1485202997

In terms of housing , is it not the case that the median Auckland dwelling price surpassed that of Sydney last year ?

by KH | 24th Jan 17, 12:32pm 1485214333

TPP. " It seems there is a determination to do this trade deal, even without the US involvement." Well yes. Because there is a legion of bureaucrats who would lose out if we stopped. No more international travel business class, no more five star hotels. And holey moley, redundancies !!!!!

by Roger Witherspoon | 24th Jan 17, 9:39am 1485203998

Got to keep the "investment" money flowing into Auckland houses you know. These "free trade" deals are more about allowing surplus generating countries (China, Japan and Germany) to buy the assets of the deficit countries (NZ, Aus). Just look at the debacle between Greece and Germany, or between Auckland and China.

by Stephen Hulme | 24th Jan 17, 9:58am 1485205108

Inevitably, NZ income growth is in short supply due to debt overhang. Banks have also added to the problem. They have successfully financialised many facets of the Kiwi living experience for foreign shareholder benefit.

Student loans are getting bigger and graduates are taking longer to pay back the money they owe.

Figures from last year's Student Loan Scheme Annual Report show the median loan balance in this country grew from $10,833 in 2008 to $14,904 in 2016.

The median repayment time for someone with a bachelor's degree also lifted from just over six years, to eight and a half.

"I really do want to pay if off, but ... I've got a young kid, and a mortgage, and just got a car loan. It's a balancing act at the moment, it really is." Read more

by Roger Witherspoon | 24th Jan 17, 11:36am 1485210984

Am I right in thinking the banks were also the first assets to be snapped up by the Aussies as part of CER?

by dictator | 24th Jan 17, 12:38pm 1485214690

Student loans are choking the spending power of people until they reach their 30s. I remember the boost in pay after paying off my loan to be quite welcome. Nothing quite like starting your working life with a negative net worth and working your way up to $0.

by Joe Public | 24th Jan 17, 9:45am 1485204341

Sydney has a stamp duty for foreign buyers of 4%

Like Vancouver and Singapore they need to make that 15% or higher.

4% won't make any difference. One good thing is that they will generate $$$1 billion from foreign students buyers, temp workers and offshore buyers.

That has to be a good thing right ?

Labour need to wake up and sort out your policy or the next election you will be sitting on the sidelines again.
1. Vancouver tax 15% on non citizen, non permanent residents and investors buying existing properties.
2. Use the Australian definition of foreign buyers ie it includes foreign students and temp workers.

https://www.bloomberg.com/news/articles/2016-06-14/sydney-introduces-ho…

by jfree | 24th Jan 17, 7:54pm 1485240884

Do you ever read replies to your comments? You got called out three times yesterday (last time checked) about completely false information around "what Labour should do".

I agree with you entirely, but you're starting to look Stantonesque.

by Stephen Hulme | 24th Jan 17, 9:37am 1485203831

In New York, the UST 10yr yield actually has fallen sharply today as Wall Street gets the jitters over the protectionist prospects of the new US Administration. It is now at 2.40%.

Hmmmmm....

There’s a big showdown looming in the U.S. Treasury market.

The “fast money,” made up of hedge funds and other speculators, upped its bearish bets like never before this month, based on futures data for five-year notes. At the same time, “real-money” accounts, composed of institutional buyers like mutual funds and insurers, did the opposite and built up their bullish positions in much the same way. Read more

by PocketAces | 24th Jan 17, 9:45am 1485204350

Now this from Trump. "Donald Trump just imposed the Global Gag Rule, making it illegal for any clinic that receives U.S. aid to even talk about abortion." Read it again, folks, that is a GLOBAL gag rule, which has just exposed his lie about other countries being able to determine their own agendas.

by kiwichas | 24th Jan 17, 11:05am 1485209116

It seems that Trump is wanting control the media, just like the Chinese Govt does ironically

by Zachary Smith | 24th Jan 17, 11:07am 1485209245

The people who voted for Trump don't want their tax money used to help kill unborn babies. Pretty reasonable really.

by ECB | 24th Jan 17, 11:52am 1485211937

Great, more poverty stricken woman dying of unsafe abortion - Really reasonable.
Because that is going to be the only outcome.

by Kakapo | 24th Jan 17, 1:15pm 1485216906

If they gave the tiniest crap about preventing abortions, they wouldn't be trying to simultaneously cut off access to contraception. But they are. See intended repeal of Affordable Care Act, which includes requirement for insurance companies to cover contraception, pre-natal care and childbirth in their plans, and the Hobby Lobby decision, which gives employers a loophole to weasel out of covering contraception. From which I conclude that they don't give a wet slap about preventing abortions, and just want to punish and control women. This nonsense will make more abortions necessary, but they won't be the safe ones. They'll be back to the days of whole hospital wards full of women with complications from backstreet abortions, and horror orphanages like there were in Romania and the USSR. They don't give a crap about the unborn babies, or women.

by Zachary Smith | 24th Jan 17, 4:38pm 1485229136

It is not up to the US to advise women in different countries what to do with their unborn children. I don't want representatives from Pakistan or Botswana or whereever coming to NZ and helping our womenfolk have abortions no matter how poor they are. Every country should look after its own, especially in this regard.

by nymad | 24th Jan 17, 12:12pm 1485213134

Fair point Zach.
Too many of the liberal opposition are incapable of seeing the irony in their demands. They just cannot reconcile the fact that there are a whole swathe of voters out there who actually voted for this outcome. There is nothing more righteous in liberal rhetoric than the attack on policy that the majority voted for.

by PocketAces | 24th Jan 17, 4:08pm 1485227298

Minority, petal, minority

by nymad | 24th Jan 17, 4:17pm 1485227866

Condescending like so many liberals.
It's all good if you can't can't understand a distributed electoral college system or it's purpose.

by PocketAces | 24th Jan 17, 5:11pm 1485231070

Perhaps you should have made it clear that you were talking electoral college not actual people.

by nymad | 24th Jan 17, 6:26pm 1485235570

What does it matter in the context of the USA?
It is an incumbent electoral college system, why would I need to distinguish between the two?

by PocketAces | 24th Jan 17, 7:18pm 1485238708

Because, as in this case, sometimes they totally different, that is why

by Kakapo | 24th Jan 17, 2:28pm 1485221285

All evidence is that this policy will result in more abortions. We've been here before.

http://www.who.int/bulletin/volumes/89/12/11-091660/en/

by Kate | 24th Jan 17, 3:13pm 1485223983

He's following on with tradition - since Ronald Reagan initiated it, Democratic administrations have suspended the policy and Republicans have reimposed it.

Pro-life is such a polarised issue along political lines in the US.

The rest of the world steps up to the plate in terms of its aid funding for such programmes during each and every Republican administration. I'm quite happy for our Government to do just that... but with BE as PM, not so sure we will So effectively, the same tricky political problem exists to an extent here - it's just not quite so visible as it is in the US.

by KH | 24th Jan 17, 4:23pm 1485228187

I have no problem with aid money I might supply going to clinics that deal with abortion. However if the yanks don't like it then it's up to them if they don't want to pay for it.
Calling it a global gag rule is just dopey. These clinics can do whatever they like, they just can't expect the yanks to pay for it.

by Zachary Smith | 24th Jan 17, 6:05pm 1485234353

KH I agree. This is the beginning of the 'America First' policy implementations. It is quite an affront to the people of other countries to meddle in their fertility. The US tried to do this in India awhile back, funding mass sterilizations, and got thrown out. Other countries need to look after their own people!

America first means other people first too....when you think about it.

U.S. & U.K. Taxpayers Funding Forced Sterilization in India

by Boatman | 24th Jan 17, 1:24pm 1485217454

The Oil Companies are rorting us .

The last time petrol was over $2 per litre the crude price was over US$100 ppbl

Now the crude price is US $50 (give or take) and the pump price is $2 a litre

AND the NZ $ is way stronger

by nymad | 24th Jan 17, 4:33pm 1485228797

Someone doesn't understand inflation, do they...

by Kakapo | 24th Jan 17, 5:56pm 1485233798

Who was it whining about 'condescending liberals' about five minutes ago? Oh yes, it was you. Pot calling kettle grimy-arse.

by nymad | 24th Jan 17, 6:09pm 1485234547

You think I am a left wing liberal?
Condescending, yes.

But, Boatman deserves it. He keeps bashing on about how his costs have decreased considerably (on other threads), and by that logic there must be no inflation. Then he writes something that directly contradicts it...