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Dutch disease and its cure - a plan to control the dollar

Dutch disease and its cure - a plan to control the dollar

By Neville Bennett

There is increasing evidence that New Zealand is ailing.

The symptoms are a high exchange rate, excessive foreign debt and a decline of the manufacturing sector.

This is often called the Dutch Disease which is defined as a development that results in a large inflow of foreign currency, which in turn causes an appreciation of its currency, making its manufactures too expensive for others to buy.

The model is not entirely appropriate for NZ because if it is agriculture or mining which is causing the boom, there tends to be large movements of labour and capital into that sector of development.

At present there is not much movement of labour into dairy, but there are large movements of capital into land. I would like to see some debate in the future on what the optimal size of the dairy production is. I believe that milk for powder and casein (but not for high value-added cheese) brings enormous dis-economies in its wake (pollution, excessive water-use, pounding of road and bridges by super-tankers, power use in drying etc).

My focus today is what a high exchange rate does to an economy.

The Dutch Disease concept is a viaduct for ideas on the 'resource curse' and other stimuli to a high exchange-rate.

We have a high dollar which is not only encouraging our industry to migrate overseas, but which is also making imported goods very cheap. Our manufacturers face unfair competition because the exchange rate is too high.

The consequence is that, like many western economies, New Zealand is hollowing out and losing a vital part of its economic structure. Many skilled people in the secondary sector are being displaced and the sad fact is that if the dollar ever plunged again the fitters and turners, machinists etc. will have lost their skills.

There is a classic case today where the people making railway carriages in Dunedin are being laid off because imported carriages were marginally cheaper. If the dollar was fair value we would most likely have kept their jobs, skills, and demand in Dunedin would be higher. We will have some difficulty in carriage making in the future.

It is unorthodox these days to talk about the need to keep a cadre of skilled workers. We are supposed to accede to a market-driven society in which the skills needed are market related. This is unconvincing: the tide may change and a low dollar could again give comparative advantages to some manufacturing.

The second argument is that nations need capability in all sectors over the long haul.

Our currency’s value is crucial to a large tradable sector of the economy. Around the year 2000, the dollar plunged to around 40c and this had the effect of encouraging exports and discouraging imports. The period was good for exporters. We are now at 80c+ which discourages exports and encourages imports.

Why should it stop at 83c, or 93c, or even parity?

Nothing is being effectively done to curb the soaring dollar. It is currently around 82c and many experts see 85c before the year is out. It could conceivably go to parity with immense collateral damage. Yet basically authorities say nothing can be done.

John Key recently said intervention was ineffective. I agree!

I agree that the Reserve Bank has no chance that intervention, buy selling and buying the dollar of being effective. I would like to see an analysis of the Bank’s intervention efficiency. I doubt it brings the dollar down for any reasonable duration. I have a plan to bring the dollar down.

The Neville Bennett Plan
The IMF has reversed its policy position on ways to control capital flows. There are many research papers on its website. Here is a link to one which argues that a policy of control is often necessary for Emerging Economies. Several countries like South Korea, Brazil, Malaysia and Turkey are using controls.

But controls have to be combined with supportive fiscal and monetary policy.

1. Fiscal policy
Much of the capital inflow over the last decade has been used to fund housing and farm land. Debt was adopted because the tax system lacked a capital gains tax. Large profits have been made as asset values appreciated. A capital gains tax would act as a disincentive to this kind of investment, and it would also change expectations that values were always going to rise.

A land tax would also encourage investment in more productive areas. Investors would hold only enough land for their needs as the holding cost would deter large accumulations. At present accumulation is rewarded with rising prices and no holding cost. This is distracting capital from industry.

2. Monetary policy
Interest rates should be set to encourage full employment of labour and capital without undue inflation, like the US Federal Reserve.

At present they are too often set to control the housing market. Good fiscal policy would almost remove concern about excessive rises in house and farm prices.

There are ways to 'sterilize' export receipts which are a little arcane but discussed in the IMF link above.

3. Financial Transaction (Tobin) Tax
The IMF supports a Tobin tax on foreign exchange transactions. These are mostly short-term in nature and cause concern that 'hot money' switching rapidly through several economies might bring instability. A tax would dampen flows and be a good source of revenue. I have supported the tax for some time.

4. Inflow Taxes on Capital Flows
This is an essential part of the tool box suggested by the IMF. Again it strikes against the short-term speculative inflows that account for much of the trading in the New Zealand Dollar. It is unlikely to deter “good” foreign investment, like direct foreign investment into industry or services.

5. Minimum-Stay Requirements
This is another IMF policy designed to deter hot money but still encourage valuable long-term foreign investment.

The continuing volatility in the dollar has deleterious effects on the economy. At present it is surging to very high levels and most experts expect its appreciation will increase with the commodity boom, earthquake receipts, future monetary tightening and a falling US dollar.

Our PM and Governor of RBNZ have said nothing can be done.

The IMF believes something can be done.

My plan includes a CGT, Tobin Tax, Inflow Tax, and minimum-stay requirements. I think it important to keep the dollar in a range close to fair value and my plan should assist in this.


* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.

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 Don’t mix up “Old School Models” around fast emerging, unprecedented world- wide developments.

I think Neville recognises limits to growth, are they not unprecedented world- wide developments?

Why not equalise the tax structure? Instead of adding new taxes which would cause distortions in the marketplace (probably to counter other distortions) why not have a simple 1% tax on all transactions. This means families and businesses will get a break, government revenue will increase and will reduce accumulation of debt and housing. Also this won't make a drastic impact on money coming into the country meaning mortgage rates will not jump.

Neville - useful article, it's the kind of thinking that needs more discussion. Any thoughts on this kind of approach please:

Cheers, Les.

I dont think playing in the currency markets makes sense...but addressing indirectly seems far better....Ive yet to see Labour jump out at doing something though.


Ensuring better control of non-tradeables inflation is foundational to it, I think, so agree on that score as it might be enough.

I think Labour have done a useful job of opening up the debate in this area since they declared they would abandon cross-party concensus on monetary policy. NZMEA have had a few useful presentations from them on this. I haven't time to find the links for you, but have a squizz on the three associated NZMEA web/blog sites for talks by David Cunliffe and David Parker. Start here:

Cheers, Les.

When you look at the non-tradeables thats Govn spending, so look at the pie....its mostly made up of; health, education and welfare....Health, Pharmac does a good job of controlling the drug costs, seems to be a world, its high % in terms of OECD spend but education is very important...Welfare? not much you can do if there are no jobs....but National is doing some stimulation....bearing in mind we dont want higher debt....

Lets look at debt, most of it is private, so housing and business debt, and in that is the tax known as interest.  We are at very high levels, so are paying lots of interest, which if businesses were investing well should mean our productivity should be increasing, yet its dropping, what is going wrong here? If exporters are being forced to become more efficient to survive the high NZD why isnt that being reflected in better productivity.? is it in the exprt sector but others sectors are doing worse and worse?

Labour is in opposition, so its crtisising National, but when it was in what did it do to help you? diddly in fact it ran up Govn spending and encouraged hosuing PIs...nuts...lots of nice social what will happen when they get back in?

Dumping monetary policy is Pollie speak for they will take control and they will as in the past f*ck it up again....I'd be very wary.....Govn's have a nsty tendancy to do the political easy thing and not the economic sensible thing....also they want to get re-elected so their timescale is too short....badly so.


You make some good point in my view Steven. I agree the last Labour government didn't do us any favours in terms of unbridled public sector expansion, notwithstanding the surplus era, because more than a little of that expansion gave poor returns, plus there most certainly was the the private debt growth issue. However, as I've said before, it seems they have learnt the lesson and would support a change to the Act and monetary policy to avoid that problem again. As for your cynisism on that, well maybe your'e right, but at least they appear to making the right noises while NACT seems to just fiddle and tweak.

You say, " ... which if businesses were investing well should mean our productivity should be increasing,..." - why do you think they are not investing to increase productivity? (Also, just to be clear what sorts of businesses are you thinking of?)

Cheers, Les.

What unbridled public sector expansion?  Spending as a per cent of gdp doesn't bear that out, nor is such an allegation consistent with the run of surpluses under Labour.    It is however a "story " from Bill English to try and cover up for his incompetence.


A very good article with good points. This high NZD will choke the country out of any life it has left in wont need to worry about low interest rates/OCR..if jobs go as a result of high xrate you wont be able to pay a mortgage anyway.

Excellent thinking Neville - we need more of this.

As the savings working group summarized: We need to export more, import less and save more.

A high currency will produce diametrically opposite outcomes.

Surely this is sufficient to consider alternatives to current policy settings were we will have been running current account deficits for over 45 years by 2015 and increasing to over 7 % of GDP.

This can only led to a Greece style scenario.


A Financial Transaction tax would also help because it would not be, and must not be, tax detuctible.  Personally I want the Financial Transaction tax to be on all Bank DEPOSITS. The word "Bank" must be widely defined. It would inlcude the Reserve Bank and all inter bank transfers.  As it is not tax deductible then when anybody, including those aforetmentioned banks as well as Telecom, Mitre 10, Pak and Save etc etc and all individual puts money into their Bank account out comes say 1%.  Everyday.  It is simple.  It is cost effective.    If it were assoiated with a reduction in GST then living costs would be reduced.  People would have more money in theri pockets. The Banks would collect it as they do the WHT. This is NOT a Tobin Tax but it would help because when those international transfers came into the Country out too would come that 1%.... Tax deductibiliuty is a bane of the taxation system and the running of a country. All those who think that there are too many public servants should be delighted. KISS


"Paymaster to Staff: We've arranged to pay all you salaries, net of mortgage payments etc that we will discharge for you directly, into an account in your name at BNZ Hong Kong. Here's your credit cards, domiciled in HK, that you can use here in NZ or anywhere else, and have the debit balance paid from your account in HK. In the meantime the funds are held on deposit  for you in NZ$ @ NZ$ interest rates, so there's no exchange or interest rate risk for you, and you don't have to pay that nasty Bank Deposit Tax that the NZ Government has just brought in"

Always ways and means, Patricia.

Except you would pay it on your purchases and when the money comes in.

How so? The funds never come  on shore, into an account, to attract the tax. The tax isn't levied on local NZ purchases ( that's called GST already!).

...... and if you're a really naughty girl or boy , and buy alot of stuff from Amazon , there's a little postage , but no GST to pay ........  ummmmm ..  , so I am informed .... yup , that's it .

Well, if you think that your Amazon packages would really make that much difference. I understand that the Postal service is cracking down more on obvious packages bought overseas to avoid GST

I was talking about replacing GST. And one way you would stop this is not allow subsidaries of the banks to go off-shore by mandating that they only use money from within New Zealand or from their parent bank in Australia.

Yes Nicholas there are always ways and means and there are always ways and means to counteract.  Why are you all so frightened to do anything?  You are all a bunch of gultelss wonders.

gultelss wonders ? Is that a cheeky chardonnay?

1% everyday?

so after 100 days (or so) I'd have no savings left?

Where do we see this costed?  ie its effects on ppl and the economy...

What you miss is people who hold most of their capital offshore wouldnt get taxed...

What about the cash economy?

By far the best way Ive seen yet to get the ppl not paying the tax they should be, is having a land tax.  That is actually very simple and cheap to collect and catches a very wide base. Now dropping off GST to compensate would be achievable.


1% on deposit, and withdrawal.

Think about your own comment Neville..."making imports cheap" that means you can buy the stuff for your new business at lower don't need to borrow so are encouraged to start up a company...hell you might even employ people!

It also means the cost of production of primary export product is that bit Neville....lower while the fx rate may clip the revenue returns, it also cuts the costs down. Business is forced to become productive.

You would do better to bitch about the extent to which the banks dominate the economy...acting as parasites. Concentrate on that.

Good point....fuel and other imported raw materials are also cheaper, if we than value add and export.....Im not sure what the net difference is...

Parasitic banks, totally agree....


talked withe an orchardist this morning. He sold his apple crop this year for 340k, his costs were 280k before drawings and taxes. Our problems are larger than can be cured with a currency fix, at the heart is out of control goverment spending.

Yeah , so many plonkers are advocating daft new taxes ( CGT , transaction tax , etc. )  , as if these'll be our salvation . .......... The ETS ( Environment Tax Scam )  is nothing more than a new form of added GST , a rip off , pure and simple .

....... we've gotten altogether too many taxes and convolutions as it is . A massive bureaucracy has grown to oversee all the extra fiddles & tweaks that successive finance ministers have added .

Cut the frigging size of government spending . Scrap the rubbish , the WFF & interest-free-loans , the bail-outs , hand-outs , gov't guarantees , quangos , ministries of shite ( womans affairs ! ) .........

...... " at the heart is out of control government spending " ......... Well said !

Hey keep you hands off my interest free student loan:-P

The stupid thing is that when they were attracting interest it was at the market rate, rather than indexed to CPI like Australia. If they hadn't been robbing students blind over that one, then the bribe might not have been so attractive. 

Sorry but I do not agree, both is the level and being out of control......our taxes are actually pretty low in terms of the its not really much of an issue....What is, is being in the wrong business. Apples have long been a problem I dont know why ppl stay in it.


I think the case for a CGT is overwelming myself....I really cant see why its not on the table....ditto tobin tax....just to start with these seem easy to do and effective. Its silly not to do it and encourgae farmers etc to load up debt to avoid annual tax...crazy IMHO.


Surely if you introduce a capital gains tax, then it works in both directions, with a loss in capital then becoming a tax deduction.

I can see the lot of capital losses on the horizon.

I just wish it wasn't always paired with Land Tax.

CGT seems to be an 'after the event' admission that things have gone wrong.

More capital losses and BKs loooming if oil cos find big oil deposits around NZ. The NZ dolllar will balloon and farmers, foresters and manufacturers will go to the wall, with a possible severe plunge in agricultural commodities happening at the same time. Oil is likely to swing too but not to the same extent as world oil stocks are depleting at 6% per annnum. OMG !

I totally agree on major losses somehow if it doesnt go past a 50% drop in the next 5 years I'll be gob smacked....

CGT, no if you write the legislation correctly so that there is 0% on losses so no claims back should be achievable, but thats the least of the worries.

The thing is to avoid a punitive CGT, so we'd have to allow for inflation at the very least and then what happens of we get deflation? not tax on that.  Where it becomes really obscure is "improvements" Im sure creative accountants can minimise the GCT anyway if we open that door....but realistically having the owner improve things is what we how to work that so the CGT isnt a dis-incentive.



The Matt in Auck plan:

- Dramatically cut the OCR to about 1%.....but only in parallel with....

urgent relaxation of planning controls on development through urgent govt intervention

Free up large parcels of land around Auckland's urban edge

Development approval only dependent on design quality and high mandated environmental approach, no arbitray lines in the sand   FOLLOW THE DUTCH APPROACH

Also free up controls within existing MUL

Introduce CGT / land tax

this plan will markedly weaken the NZ dollar, and house prices won't go crazy despite the OCR cut because of supply response

Exporters will be boosted as will the local development sector!!!!!!



Im not sure the OCR matters much any more...if it starts to meet and then go past what the banks can lend hot money for offshore, maybe then.........

We've seen shoddy buildings, last thing we need is more leaky homes, also the price of houses is a bubble based on cheap credit and you want to pump it up? Im really dubious that we need lots more housing....some of the stuff Steve Keen is putting out seem overwelmingly correct.

CGT and land tax I really cant see any good case all means someone point out why not, especially if it means we balance the deficit.

Im not sure what would weaken the NZ dollar, everywhere else is on dire straights and/or racing to the bottom ie damaging/destroying their currency...Im not sure its something we can do and not make huge mistakes over.....



I am actually with Matt in this one.

I can't see why haven't made a dramatic drop in the OCR well before now. Everyone is chasing yield, so if the OCR was slashed dramatically the money would flow out of the country pretty quickly me thinks. Real interest rates would therefore stay higher, and combined with relaxed planning the housing market would not overheat.

Stoopid!  What amazes me is that all you guys want to raise more taxes as a solution to a problem that is caused by government intervention and distortions of the market place

The New Zealand Dollar is not rising - it is falling at a slower rate than the US Dollar which is being destroyed by the actions of Obama and his ship of fools. It is falling however - notice how every year the dollar buys less food, less fuel, less houses. If the dollar was really rising, then surely we would be able to afford more of the above mentioned items.

Compare all currencies to Gold and you will see how badly every paper currency is being debased. Sadly people have bought into the myth that this time it's different and the experiment with a global toilet paper money sustem will actually work out. It never has and I doubt that it will survive this time either.

Yet all we hear is the sheeple clamouring for more government intervention and more taxes on those people who are productive - the ones who actually employ people and produce goods and provide services.

As to the property market, it's well past overheating, its been boiling away like a Japanese reactor for the last 10 years. It's not that prices are too high thats the problem, but rather that the levels of debt that is attached to these prices. This is the major issue - because leverage is wonderful on the way up, and a killer on the way down.

Once the debt bubble bursts you will see blood in the streets like you wont believe. I predict that the end of the 40 year drinking binge will leave a monster hang over if it doesnt kill us all.

Amen to that ! ...... the fools want more taxes , more government .....

... what is it that prevents NZ Inc. from going belly up , where does the productivity originate from , government or the private sector ?  .....

I shakes me wobbly gummy head in dis-belief that so many people think we need a whole raft of new taxes .. bizarre , truely bizarre ........

No its  failure of Govns to control and regulate the market place that has us in the biggest mess since the great depression...

"Once the debt bubble bursts you will see blood in the streets like you wont believe. I predict that the end of the 40 year drinking binge will leave a monster hang over if it doesnt kill us all."

On this we totally agree....the only Q is how big a drop, 50% (back to 3:1) to as bad as 90% (ie no credit available so only cash sales).


I haven't talked about taxes at all!

But I agree with you and you will notice my post is termed in the past tense. 

We missed the boat and now just have to sit and wait for the cards to fall. If you are familiar with my posts you will see this theme. I don't normally bother to offer plans to fix because that simply won't happen. But you can't walk around all day with your chin on the ground:)

I dont agree, well until someone writes up why as I think the OCR maybe a lame duck. So I'd like an explanation of whats actually happening because I dont see it. For instance, when this fabled money comes into NZ what is it invested in to get a yeild?  Realistically, mortgages are the biggest thing and they are set 1.5% above the hot money at (about 6%) this means hot money is getting 4.5%, considerably above the OCR....drop the OCR and what happens? OK businesses get a better lending rate, maybe, but they are not borrowing....the banks are p*ssed they are not leveraging their balance sheets to "grow" like duh of course everything is flat....So far as I can see, zilch....please tell me otherwise, Im all ears.




It is more a matter of recognising, at every point of policy decision, that the free movement of artificially created electronic money across frontiers is not on a par with the free movement of goods and services, let alone more basic human freedoms, and recognising this not only for developing countries but for the so-called advanced ones as well.

From: The FT this morning.

Good servants can make bad masters

By Samuel Brittan

Oh I think financial capital is killing us....the right wingers complain on Govn taxes, yet from what I can see whats really crippling us is the debt repayments.


Steven, the debt is hard to repay in part because of our bloated government, who do you think pays for all these pen pushers, tax on other pen pushers? If you expect  someone to invest capital with little return and high risk, then hit them with high taxes as well, then we will become capital starved and more dependent on bankers credit and capital gains.

 I agree with you that the ponzi world of finance may be our undoing, but poor inefficient government expenditure  is going to be a close second. I will leave you with a comment from Greg Pytel



Hi Bob

I think you are missing the point. The banks were allowed for countries like Greece or Britain to ran a huge structural deficits (by lending them money) as at the same time the bankers were stealing money using a pyramid scheme. Once this pyramid started collapsing (in 2007 - 2008) countries had to put even more money to prevent a complete meltdown.

So in reality a problem of countries', like Greece, deficits (which is a big problem) is tiny comparing to the structural theft organised by the bankers that made the banking system illiquid. Yet it is a very convenient smokescreen: rather than blaming a real criminals (bankers who are pyramid purveyors) the attention is shifted onto societies that want to live better and governments that were spending money irresponsibly (which has been a fact).


but when you look at the OECD average for total tax, NZ is quite low.....and asking for a lowering of tax because you foolishly took on too much debt is not IMHO acceptable.  In terms of low returns on high risk, yes but this is a function of peak's production in numerous commodities but especially energy....what you are saying is, joe public has to share the costs of a business making a good....sorry but I see that as socialising losses and privatising profits only with a different name.

Poor and in-efficient Govn expenditure, sorry but I see little evidence of this, its a drum taht has been beaten to death IMHO.


Agreed. Thought provoking article Neville. I haven't always agreed with your posts/articles, but this seems like a reasonable response to the current situation and certainly better than the do nothing approach taking by the RBNZ & GONZ.

Neville, "There is a classic case today where the people making railway carriages in Dunedin are being laid off because imported carriages were marginally cheaper"

have you read the BERL report?

"Our research suggests that at these prices, the rolling stock is unlikely to be sourced from quality western suppliers. It may be possible for Asian sources to supply at prices close to these. However, the quality and expected life could be less than those from Europe and North America, and we suspect from New Zealand."

"could" "suspect" where is the proof or otherwise?

"The idea that we could get the trains built cheaper elsewhere may be true, but almost all rolling stock purchases being made elsewhere are sticking with companies that have established quality and safety records"

So lets slag off unknowns with maybe dodgy safety claims....

"there may be substantially lower whole-of-life costs in making the trains here"

maybe? it either is or isnt and should have a $ cost there...."maybe" isnt acceptable....

This is justified? no its really slander to my mind without evidence....its an dodgy opinion and not fact.

"The fact that New Zealand is often a small player in a large market also means that we may not be a priority to an overseas supplier once the original manufacturing has been completed."

Proof? also lots of parts are standard these days, bearings are made by a number of manufacturers for instance and are common sizes. Also a lot of the specialist parts would be shipped in in the case of local assembly anyway. So with a failure we'd be buying one from the OEM...the train builder on the other hand would be buying many and probably keep some off the shelf stock and have clout with the its quite likely the train builder will get it as quick or quicker, thats certianly the case from my enginerring experience.

Then there are the risks....buying from an established vendor of std units means bugs have been ironed out, here in NZ they would take longer as they have to be deisgned and then bugs taken one off items safer? less risk?  probably not, maybe not....this just does not add up.

I also always look at who commissioned the report...typically in engineering and IT its the vendor who sets the boundaries and pretty much aims to get the answer the vendor wants, worthless IMHO.

Its an academic I would think if a student submitted a paper like that with wooly, vague inuendos and unsupported critisisms you would give him an F. I know if I used that sort of stuff in my technical reports I'd get blown out by my management.

The economic impact maybe justifiable, but a business does not care about the overall good to NZ....indeed if NZ made trains keep breaking down because they are poorly made and designed then that impacts commuters and that impacts GDP and Kiwirail's bottom line....



That BS stands out steven. The one point never mentioned is the likelihood of union orchestrated trouble at the workshops in the leadup to the election. Almost certain to happen. It is a cost factor the union members never see. Even the Labour Party dorks recognise the risks to themselves of handing a weapon to the unionists. Bradfordisation of the nation is what would happen. Hello Castro where have you been.

 Interestingly stupid Wolly !

New Zealand either continuous to be rather a consumer society  with more severe negative consequences or develops a manufacturing culture with many advantages described many times earlier.

Where are the 170’000 decent jobs coming from - PM ?

A reasonable good NZeducation system, providing young Kiwis with the potential to compete internationally in many sectors is constantly abused by the government not supporting the private sector, but allocating well paid work to China and other nations. A government, which is to blame of wasting billions of taxpayer’s money by draining our national “Brain/ Knowledge Capital”.

As a consequence our ministers proudly explain their spending in the billions on infrastructure – HA – including more prisons, boot camps, welfare programs, the extension of the police force,  etc. – what a “Mickey Mouse Economy” !!

Read more:

Wolly, can you tell how and in which sector decent jobs are created for the wider NZpopulation to improve the economic performance ?


 Employment - get the fundamentals right - minister Joyce !

Minister Joyce it is much more at stake, then just – cheap or more competitive imports in the billions.

In an increasing, more difficult worldwide environment securing full employment - providing decent jobs for our NZcompanies – for the wider NZpopulation is the major task for our government.

You missed may be possible for the first one...


A breather of fresh air. I hope you are talking to David Cunliffe because we need so new solutions instead of continually going back to the future.

Bert..why do you think it is a good idea to hand your future to any politician..especially cunliffe!....we need less govt in our lives...we do not need bloody pollies deciding our future!!

Wolly - the current worldwide turmoil cannot be managed by the private NZsector only. What we need isn’t necessary less government, but efficient government – supporting, working together with the private sector. Unfortunately this isn’t the case here in New Zealand.

It is up to our society to make changes - to be tough with our parliamentarians - demanding 100% performance.

 E.g. - I do not understand why my comments to sack underperforming ministers (Joyce/ Brownlee) do not have more backing.

They are involved like it or not. They would laugh at your comments in China.

Sorry Neville, I was hoping for better. D minus, I'm afraid.

Capital Gains Tax encourages a regulatory environment that supports capital gains. California and the UK are excellent examples. It is a stupid tax for two reasons - it tells entrepreneurs to "Piss off your type are not wanted here" and the tax flow comes to a sudden halt when the bubble of the day bursts. A Very Silly Tax indeed.

You make no mention of the tax treatment of interest. We allow interest to be deducted as an operating expense. This is nonsense as the decision to finance the business through borrowing rather than equity is an ownership decision not an operating one. Simply stopping this rort would have a significant effect on the capital structure of business.

The problem is that the finance sector is taking the surplus generated by society. In a saner system the surplus would go into building decent houses and factories and businesses. So we have a finance sector that is bigger than the construction sector. Governments tend to be complicit in this rort as it benefits the politicians and the government employees (government employees including military, health care, sickness and unemployment beneficiaries that is).

The IMF are exactly the people we should not be listening to. The effect of their policies is make entire countries into debt serfs paying tribute to the US banking system. They are completely incompetent, witness their inabilty to forecast the financial system meltdown in 2008.

I could go on, but we need to be cunning if we are to ensure our independence. The way forward lies in aggressively cutting the special privilege the banking sector enjoys, thereby reducing the incentive to borrow. If you don't owe the bank it has no hold over you. It's called freedom.

Oh, monetary policy, nearly forgot, buy a tonne of gold a day when the NZD is above 75 cents US. Exchange NZD (cost nearly zero) for a physical item which takes human effort to obtain. Doesn't have to be gold but it does have to be physical not virtual (IE absolutely not foreign currency). Don't try to control the currency but do exert gentle downward pressure and above all PROFIT from it being unsustainably high. Build up a nice fat gold reserve. Make hay while the sun shines.

The case that interest deductibility favours debt financing rather than equity participation is a good point well made Roger. I rather imagine the transition would be rather challenging. The finance sector would mount the mother of all campaigns against it. It would be great to get back to the days when an enterprise was always launched by assembling a group of relevant shareholders looking to a more distant horizon than occurs now.

"Capital Gains Tax [...] is a stupid tax for two reasons - it tells entrepreneurs to "Piss off your type are not wanted here" and the tax flow comes to a sudden halt when the bubble of the day bursts."

Forgive me for saying so, but NZ already says that to wouldbe entrepreneurs. Our entire system is geared to cause people to give up in despair and leave if they're able.

Bubbles? What do you call the global and local economy of the last decade? Just one bloody enormous bubble which did what bubbles always do eventually. Is that the fault of a (proposed) CGT?

You are and have what is known as a Vested Interest. Guys like you and your financial behaviour directly contributed to the recent bubbles which when they burst did so much damage to the NZ and world economy. Now you're whining like a little bitch because you're afraid you may be expected to finally contribute your fair share to society, instead of just taking from it all the damn time.


LSHCCOMNAIWEDA,   ...................ahaahahahahahaha.....bonk.!

LSHIFOMCASMH ! ......... aha de ha haaaaaaaaaaaaaaaa  ....... crash /  splat ! ....

... bugger !!!

Mate, it's not just the SYSTEM that is geared to do it. THE ATTITUDE OF ALMOST EVERYONE IN NZ DOES THE SAME THING. We are the most 'NO CAN DO' of any group of people I have ever met.

In NZ, if you have an idea it will be bashed, especially if it is new. Or new to Kiwis. It's like we believe that only foreigners in foreign lands can do anything new, interesting, exciting or profitable, and that Kiwis can't do any of that, and a Kiwi should be smacked down if they ever dare try.

As I say, it isn't only the system and officialdom of every kind in NZ that is set up to do it. Just about all of your family, friends, workmates and everyone else you know and meet in NZ (who are Kiwis) are the same, even if you don't yet realise that. We don't understand just how bad we are for it until we meet a lot of foreigners and travel overseas.

In a place like the USA (love it or hate it), the losers are the people who give up, and certainly the people who never try. Americans don't care how many times you fail, as long as you keep trying. It's the quitters who get bashed in America, not the tryers. NZ is the opposite of that.

"The problem is that the finance sector is taking the surplus generated by society. In a saner system the surplus would go into building decent houses and factories and businesses. So we have a finance sector that is bigger than the construction sector. Governments tend to be complicit in this rort as it benefits the politicians and the government employees (government employees including military, health care, sickness and unemployment beneficiaries that is)."

No that the finance sector dis-advantages all workers and the Govn...


Totally agree with your comments Roger.


"You make no mention of the tax treatment of interest. We allow interest to be deducted as an operating expense. This is nonsense as the decision to finance the business through borrowing rather than equity is an ownership decision not an operating one. Simply stopping this rort would have a significant effect on the capital structure of business." 

roger....Totally agree with this

ALSO the point about the finance sector.

Totally agree with your view on the IMF

Agree with u on aggressively cutting the special privilege the banking sector enjoys.

Not so sure about your conclusions on a Capital Gains Tax...  ( I would add that PAYE is probably the most inequitable un just tax there is ).

i think our exchange rate issues are manifold... and largely out of our control... ( maybe the best we can do is mitigate Capital flows with taxation..??? ).....  (And it is our own demand for $NZ , thru borrowing, that helps strengthen the dollar )

Anyway...  just wanted to say I really like your questioning of the tax treatment of interest...amen

Cheers  Roelof

China has accumulated vast wealth over the past 20 years by pegging its currency to the us$ and depreciating it's currency in the process artificially. Although it flies in the face of freemarket economics it has been good for them. Why are we not pegging our currency to say Australia to remove this voliatility? It seems like commonsense to me given that our markets are similar, the composition of our banking sector is also Australian owned. Why delay?

China could do this because it could run a surplus but not cause inflation because it had an enormus supply of underemployeed labour which keep the labour cost down. Labour cost became a small and small percent of the economy. Now the supply of labour is drying up, inflation is racing away.

Greece did very well tying its currency to Germany (thru the EUR) didn't it.

You are missing the size of China's economy, compared to either Greece or New Zealand.

This is simply in-correct...China has accumulated vast wealth because it has become a vast factory for the world's consumers...A typical chinese factory worker earns $70 a MONTH....there is little RMA or anti-pollution really we are exporting our pollution production to them...


I just had a quick look at the exchange rates. NZ$ vs. CHF - is one of the weakest I have seen in the last few years. So, what is it all about a strong NZ$ ???????? – it just weakens slower then the US$ - Euro and some others.

Gold Reserves by country:

It seems we fall off the bottom of the table, behind Fiji and Costa Rica. This is not good.



"There is no Recession in New Zealand" - a satirical piss take update of Blam Blam Blam's

"There is no Depression in New Zealand": 


Discussion seemed to move to Taxation. Great. Taxation is interesin and Fun.

NZ Problem. (not just us of course)

In NZ we tax doing. We tax creating, producing , consuming. Doing stuff.

In NZ we do not tax 'not doing' sitting around rent seeking, waiting for a capital gain. inheriting stuff. generally being lazy.

So we tax doing and don't tax not doing. And then we wonder why we are not doing enough.


Stop or at least greatly reduse the taxation of doing. And tax not doing.


Land tax- tax the land not the work.- Land tax works because it taxes rent seeking, capital Gain chasing and does not tax doing. NZ seem quite prepared to pay a massive tax to bankers as interest payments for inflated land - so why not grab  some of that as tax instead.

Reduce GST

Reduce income tax/company tax- what rate- a rate that makes it so that accountants stop getting rich off us- in other words low enough that we just won't care to try and beat the system

Do not have a capital gains tax

We maybe have to worry a bit less about exactly what %is the exactly correct percentage that Government should spend on our behalf and wonder a bit more about what they are doing with it and where they are getting it from. Also why they should have to balance every year. Stop all accounting tricks and off balance sheet exercises.

Any of you that secretly do not want any tax at all are probably secret socialists who want police, army, roads etc ( all socialist activities)  but just hate poor people, old people  and children ie hate/fear weakness.




Now if you wanted to have an industry going places you want to be in something thats expanding and developing IMHO....look at green tech. NZ has the educational level, attitude, engineering capability and size (to turn on a dime) to make profits in emerging markets like solar...wind,

Here solar is getting down to 30cents (NZ) a KWH...

“We are considerably lower than natural gas peaker plants,” says Dinwoodie. “We’re also coming in lower than new nuclear and becoming lower than new coal. Gigawatts of these plants are being developed in months — not years or decades."


The Rocky Mountain Institute projects that these costs [PDF] will fall by 50 percent in the next five years. (Note: This chart is from RMI, not from the Dinwoodie/Shugar presentation.)

The great thing about NZ is its high solar gain yet low air temperature while one of the graphs points to solar meeting air con base loads it also then meets business day loads...and because NZ has a low air temp, overnigth building structures can be cooled with "free" air ready for the morning....all cool (excuse the pun) stuff....

Well you know I think that there is no excuse for using electricity for climate control in this country, it is simply a matter of design.

Depends where you are...anywhere south of Taupo yes.....Once you start to appraoch Auckland you are seeing very high humidities and the air temp is climbing, just where solar is beginning to be useful. Personally I'd like to see far more passive cooling, its not only energy efficient is good working space.

However there are some specific uses like IT server rooms where passive cooling just wont work and may never.....simply to many KWs close together.....I means a typical server is 1kw....disks are similar....


Depends on whether you are talking commerical or residential, but good design can be done for passive for either in any of our climates. Perhaps low sunshine areas in the far south may be the exception, but only just. No problems in CHCH.

The interesting thing is that Auckland primarily has an underheat problem, but large commercial buildings tend to have an overheat problem because of the combination of solar load, people and lighting.

It is just a matter of changing the building to suit the climate, not altering the climate within the building. In a high heat loat commercial building, well you just design another way and don't built multi stories. There is psychological evidence to show that working or living over four stories is detrimental to mental healt anyway.

You have said you have done study in this area, but this area has developed a lot in the last decade. There are some good examples around now internationally for passive control. We are getting better in NZ, but still have a way to go. The Massey library in a bit of a showcase.

My lecturer on this topic has assembled a pretty impressive body of work and covers a lot of territory. He is Honk Kong chinese and consults internationally in this field. We went through macro issues such at city layout, right down to micro climate. There are about 20 different parameters to consider when designing a building! Case study we did was the thermal performance of a school. Bad despite it only being 5 years old. Quite enjoyable lectures despite the language barrier.

One of the areas Auckland is weak in is our parks are too big. Lots of smaller parks to break up the winter wind, with lots of trees to provide shade and humidity control in the summer.

One of the interesting areas he has progressed is on mold. He has worked out the thing to target is germination, rather than growth. In this instance is actually lowers the minimum recommended threshold to about 16°C and 60% humidity.

Neville I would be interested in hearing the 'why' behind talk of parity in the NZD this year.

I would have thought with Bernanke lifting the throttle on the printing press, and the tenuous position of a number of economies, that the NZD was in danger of going into freefall at some stage.

If Bernanke continues to print, then I could understand. But I think he will take a breather to let the QEII effects come out in the wash. Seems to me that the markets have in general stalled out and are in a what next mode.

Um if Helicopter Ben spins up the presses for QE3 and frankly he has two choices, do so and stagger along or not and dive straight into the worst Depression ever recorded....then the $USD will drop in valueso the NZ increases in value relative to the USD....

Yes I think they are stalled, I dont think he has the opportunity to take a breather, not even a quarter frankly...


Neville your cure and plan is a NO NO!

The economist article on Sweden is a must read:

"Mr Borg calls this “reinforcing the work ethic”. Mr Reinfeldt talks simply of making work pay.

"The retirement age has risen to 67. Inheritance and wealth taxes have gone. Mr Borg and Mr Reinfeldt believe firmly in ownership as a driver of prosperity.

"Unlike Britain, Sweden is happy to let private schools and hospitals make profits from taxpayer-financed services if outcomes are better.


How about a decentralized money supply using a medium with natural scarcity? Then dollars could be backed by human labour instead of just debt.

I wouldn't give up on fiat money just yet. Just get rid of the debt.