90 seconds at 9 am: Calls for higher tax rates

Dairy prices rise again; US factory output surges; China juices market with big cash carrot; AU politicians round on bank bosses; Labour parties call for higher taxes; UST 10yr yield up to 2.33%; oil down and gold up; NZ$1 = 68.9 US¢, TWI-5 = 73.5

17th May 17, 7:35am by David Chaston

Here's my summary of the key events from overnight that affect New Zealand, with news some left-of-centre political parties are bringing back calls for higher tax rates.

First up however, the latest dairy auction has brought overall prices +3.2% higher in US dollar terms and +3.8% higher in NZ dollar terms. The key WMP prices are up another +2.4%, and it was a strong recovery in the butter price that kept the auction on the plus side. That is now five successive positive auctions all with smallish gains. Since the beginning of the year however, prices are really only up +6% although since this time last year the gain is a more remarkable +60%. It is doubtful that today's event will change any payout levels although it will solidify the $6/kgMS level already estimated.

In the US, new data out today from the Federal Reserve shows that industrial production surged in April, its largest gain in more than three years. The +1% jump in one month brought with it a strong rise in capacity utilisation at American factories. Going the other way however was data out for home building in April, which stumbled surprisingly when markets were anticipating a strong gain.

In China, their central bank made its biggest one-day cash injection into the country’s financial markets in nearly four months. Mitigating bruised investor confidence is said to be behind the move, and it was big - a net NZ$36 bln was added yesterday.

In Australia, the Federal government's turn on the big four banks just got nasty and personal. The bank bosses have been vehement in their criticism of the move to tax them selectively and that has brought an angry response from the Prime Minister who has rounded on the chairman of NAB, who used to be the head of the Australian Treasury. There is widespread and bipartisan support for the new tax.

And staying in Australia, their opposition Labor Party will announce today it will push for a 49.5% top tax rate on personal income to help bring their persistent budget deficit under control. And the Labour Party in Britain has announced they want to take their top rate to 50% along with a revival of its policies to nationalise parts of British industry starting with the rail networks and 'energy system'.

In New York, the UST 10yr yield is lower today at 2.33%.

The price of oil is marginally softer as well. The US crude benchmark is now just under US$49 a barrel, while the Brent benchmark is just under US$52.

Gold is up however, up US$8 to US$1,237/oz.

The New Zealand dollar is lower that at this time yesterday and is now at 68.9 USc. On the cross rates the Kiwi is at 92.7 AU¢, and 62.1 euro cents. The TWI-5 index is at 73.5.

If you want to catch up with all the changes 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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22 Comments

by sharetrader | 17th May 17, 7:53am 1494964407

The people in aussie cant be that stupid to not think the bank tax will not be passed onto them and become n indirect tax

by Gummy Bear Hero | 17th May 17, 2:00pm 1494986437

... ummmm .... actually , it's Australia .... so yes .... I really think they could be that stupid ... after all , most everyone hates the banks don't they ...

by Foxglove. | 17th May 17, 7:58am 1494964694

Labour parties seem to be under some compulsion that tax increases are the only solution. Except of course the enlightened & innovative Lange government, and the complementary introduction of GST. Then of course the Clark government kept the GST & swiftly raised the taxes again. The only voice against that was Peter Dunne & he voted with his feet. Hard for me to vote for Labour too on that history.

by Zombie ponzi | 17th May 17, 8:25am 1494966356

Meanwhile National, the great economic managers have delivered tax cuts while running deficit after deficit and simultaneously under invested in New Zealand's infrastructure and services.

And now we have a wafer thin surplus it will be spent on election pork barreling?

Tax cuts paid for by debt?? Begs the question as to whether the tax cuts were ever really affordable.

by Foxglove. | 17th May 17, 9:14am 1494969282

Yep it sure is a sad state of affairs when, as far as choice, everybody is going to be voting for what they see as doing the least harm as opposed to the opposite.

by OnwardsUpwards | 17th May 17, 12:30pm 1494981010

Ergh, your views are so out of touch with reality. Tax CAPITAL not INCOME. Now some unfortunate single income family will get punished because the breadwinner earns a 'high income in IT or another profession'. Meanwhile the local plumber gets free tax credits for breeding, runs his company at a loss has 20 rentals and is mostly drunk on the weekends. GO LABOUR!

by delboy | 17th May 17, 3:47pm 1494992827

A surplus means they're over taxing the population. No Govt should have a surplus.

by JimboJones | 17th May 17, 7:47pm 1495007253

Only if the govt has no debt. In the good times governments should run a surplus and pay off debt, in bad times they should stimulate the economy through debt.

by Stephen Hulme | 17th May 17, 8:03am 1494965014

In the US, new data out today from the Federal Reserve shows that industrial production surged in April, its largest gain in more than three years.

Indeed.

Since last September, IP in oil is up more than 8% in just seven months’ time, the kind of sharp rebound usually associated with cyclical patterns. The problem for oil producers, US industry as a whole, and the overall economy is whether this resurgence is sustainable given the reluctance of oil prices to surpass $50 or $55 (WTI). As noted yesterday, there are already soft, anecdotal indications of at least an unease almost certainly related to the oil price.

If oil producers start to get nervous again, they would likely project that unease back up the economic chains of second and third order effects, where it almost looks like the annual change in the price of oil has become the template by which all statistical accounts are tracking…There has to be real processes that mimic the results of the CPI as to actual manufacturing, and it seems as if the marginal changes in the oil sector are the pathology of, to this point, said disappointment. The lack of momentum indicated by stubborn $50 oil is both the CPI base effect as well as the increasingly nervous oil producer maybe putting on hold again all those grand designs.

For April at least, the production rebound continues for oil, meandering everywhere else. Read more

by David Chaston | 17th May 17, 8:17am 1494965854

I didn't read it like that at all. Yes "mining" was up +1.2%, but it is the "consumer goods' up +1.5% and 'business equipment' sector up +1.2% that caught my eye as the real movers. 'Mining' is very volatile and jumps around all over the place. That was not the real story here.

by Stephen Hulme | 17th May 17, 8:56am 1494968206

How did the UST 10s read it?

by Andrewj | 17th May 17, 8:51am 1494967883

Lever pullers look to be trying to control the dairy markets, I watch with interest.

http://www.independent.ie/business/farming/dairy/uk-puts-milk-powder-in…

by profile | 17th May 17, 9:37am 1494970678

The painful effects of QE and the debasement of currencies. You would think they would use a tenner. "One Birmingham cocaine user, who did not want to be named, said: ‘I thought I was the only person to have had my nose cut by the new fiver.

‘But when I told my friend how I was in agony he said I had been “Winstoned” and it was happening to everyone.’

http://metro.co.uk/2017/05/11/people-are-being-winstoned-by-new-5-notes…

by Nomad | 17th May 17, 10:47am 1494974851

It is both very interesting and disappointing that apparently intelligent and educated people think national are good money managers when evidence is out there suggesting otherwise; many examples have been quoted here on this blog .
I am not National Hater or a Socialist or so called dole bludger , in fact I did vote for National for the first time but realized they were there to serve vested interests only and only.

by murray86 | 17th May 17, 12:41pm 1494981701

Don't worry Nomad, Labour are no different, they'll make promises but dither, delay and change their mind (their policy on negative gearing takes effect 5 years out)NZ First - Winston's vested interest is Winston. Nothing will change, just tinkering around the edges.

by AK79 | 17th May 17, 11:10am 1494976207

Labour in the UK is unelectable. Their leader, Corbyn, is an actual Marxist and will only destroy the UK if he happened to become PM. Fortunately, the voters in the UK can see it for what it is and will avoid him like the plague.

by delboy | 17th May 17, 12:42pm 1494981760

Its not news but rather a fundamental fact that Labour governments = tax increases.

by JimboJones | 17th May 17, 7:56pm 1495007818

And right wing - tax decreases paid for by government debt. They always claim tax cuts can be paid for by efficiencies but it's never the case.

by Boatman | 17th May 17, 1:51pm 1494985900

What is it with the left parties ?

If anyone tried to make me pay 50% income tax and then another 15% GST, plus a host of other taxes , I would sell my assets and take the money offshore and emigrate or simply stop working gift the money to my kids to settle their mortgages and go on the Benefit .

The only policies we ever see from the left is TAX TAX AND MORE TAX .

Just imagine the damage a 50% rate of tax would do .

Capital creation and savings would be all but impossible and we would go into economic decline like we saw under Harold Wilson in the UK

by notaneconomist | 17th May 17, 3:19pm 1494991175

Ah Boatman, the left believe that the forces of physics don't apply to taxation....I think the confusion comes from the fact you can lift someone else standing in a bucket up.......however...... those on the left cannot seem to make the distinction between "WHO" is standing in the bucket and "WHO" is doing the lifting..........that's the state education system for you!!

by Foxglove. | 17th May 17, 4:24pm 1494995056

Fair enough, but you see the Left prefers a bucket with no bottom, so therefore they believe they can stand in it & lift it alright. A matter of illusion & double speak that will not fail to confuse and please the believers. Was there not an old musical hall number that started "there's a hole in my bucket dear .somebody ....., a hole" and then ends up with the same chorus. Would have to think that is a fundamental parallel to politics in general.

by JimboJones | 17th May 17, 7:54pm 1495007699

Doesn't seem to cause much damage in Scandinavia