Bruce Wills says whining about the high exchange rate misses the key point; it is our fiscal and regulatory failings that are doing the real damage. Your view?

By Bruce Wills

Earlier this week, Federated Farmers received an email from an exporter. It was looking for us to support the Manufacturers and Employers Association’s John Walley, in trying to change monetary policy.

The email said the “NZ dollar [was] being traded like a cheap Vegas Casino” and that “there are policy options that can lower the currency, currency should be a policy target”.

Coincidentally, the NZ Herald’s Brian Fallow, published a column mid-week with the headline, “Monetary policy needs mates”.

Federated Farmers may not be a close mate of monetary policy, but we are on friendly terms.

Eight years ago, in 2004, exporters faced a Kiwi dollar that was US$0.67 in January but ended the year at $US.71. Nowadays, the dollar has an eight in front of it and the markets speculate a nine, if not parity, may be on the cards.

Don’t get me wrong, that high Kiwi dollar hurts me like billy-o.

Yet as one exporter to another there is much more than monetary policy involved.

We know from experience that we cannot take on the world.

Nor should we start pumping out five dollar notes because that is a race to the bottom.

If you excuse an uncharacteristic bluntness, you are dreaming if you believe our Reserve Bank can set and then defend the exchange rate against all comers.

Instead of the ‘love that dare not speak its name,’ we have a “policy choice that dare not speak its name” and that choice is fiscal policy.

This is about the size and choices government makes in spending our money.

Until government reins in its massive spending and borrowing, any intervention in the dollar would be ineffectual and worse than futile. 

Government policies need to focus on making our economy more competitive and productive and we need to be as one-eyed on that score, as any committed Canterbury rugby supporter.

Fine words you may say, but what does this really mean?

As a country and farmers included in this message, we need to stop living well beyond our income.

The main target for this message is government centrally and locally. We need to tackle how and what government is spending our money on well before taking an axe to monetary policy. We can add to that the quality and quantity of regulation too.

In 2000, when Sir Michael Cullen delivered the Budget, central government expenditure stood at $34 billion. Eleven years later and Bill English presided over $73 billion.

Right now, core government spending makes up over a third of the New Zealand economy but once you add in local government’s $8 billion, that pushes the government sector to over 38 percent of Gross Domestic Product.

If we just take the local government sector since 2002, its spending has surged by 119 percent, the rates take has increased 95 percent and debt has quadrupled.

So here is one test. Are local services twice as better?

Like local government’s “four well-beings”, our politicians in Wellington find it hard to say ‘no’ to increased spending.

Then again, if you don’t feel the burn in the form of a high dollar but get the spending benefit, is it no wonder?

So here is a ‘what if’ and a huge one at that.

Imagine if central government spending had grown by just the rate of inflation plus population growth. Instead of a $73 billion budget last year, Bill English would have announced a $56 billion one; $17 billion less.

Take that approach back in time to the Clark-Labour Government then over a decade, $100 billion dollars would have been left in the wider economy.

That is one mighty buffer against the kinds of natural shocks we encountered in 2010 and 2011.

To say we are disappointed in the quality of this debate is mild.

At no stage are politicians and lobbyists questioning the size of government. National knows it ought to do better reigning in government spending but frets over the political fall out. Labour ought to be playing the role of responsible government in waiting but is backing one spendthrift policy after another. As for NZ First, we would hope they will support the Public Finance Fiscal Responsibility Amendment Bill. Languishing on the order paper for want of a first reading, this Bill carries a range of amendments vitally important to better fiscal policy. It includes ensuring public finances have regard to the impact upon monetary policy.  It won’t be top of mind down at the pub and nor is it as good as Rodney Hide’s Spending Cap Bill, but it is a fundamental first step towards slowing a run-away spending train.

The quality of regulation is also critically important.

How many export dollars will be lost and how many export jobs will be destroyed if Horizons Regional Council type policies spread to other parts of the country? 

We need to understand that money benefits the environment by making the impossible, financially possible.

The economy and the environment are flipsides of the same coin and we need to remember that.

It is also why a Regulatory Standards Bill with teeth is needed to change the culture of government at all levels.

I suggest those clamouring to change monetary policy need to take a deep breath and look in the mirror. It seems they want to collectively blame the Reserve Bank Act instead of imprudent spending and poor regulation. We need to sort those issues first before taking an axe to monetary policy.

Perhaps the answer is for each council and each Member of Parliament to have a bust of Ronald Reagan containing ten of the most dangerous words in the English language, "Hi, I'm from the government and I'm here to help".


Bruce Wills is the President of Federated Farmers. You can contact him here »

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Government debt at 30 June 2012 was $48.383 million. Private sector debt was $208.017 million (four times higher). Source RBNZ E3 data series. Agricultural debt was 48.338 million (RBNZ C25 series) very much the same as the Government debt.
So how about Bruce Wills and Federated Farmers starting a campaign to lower agricultural debt, instead of focusing on Governent debt?
Perhaps Bruce Willis should take a deep breath and look in the mirror.

The government debt is " dead debt " , money going to prop up seriously dopey welfare packages for the middleclass and wealthy ...... Bruce Wills is right to focus upon that .
....... and private sector debt ? ..... houses ! ..... We have borrowed from very willing Ashtraylian banks , four times as much debt to lavish on unproductive houses , as we have borrowed to invest in very productive agriculture .....
The agriculture debt is offset by 5 times its weight in dead debt from government welfare and from house trading .....

Slow down Gummy 'values' are bloated on debt created by the parasites and flogged off to those who gambled on 'bigger is better' and 'capital gains are best of all'.
Bruce really ought to take a long hard look at it.
Has he done so!

Comment of the day, Wolly.

 " ....we have borrowed to invest in very productive agriculture ....."
Roger, anyone - I'm really keen to see some numerical evidence to support this statement. I think a lot of that 'investment' was to the benefit of Australian bank shareholders and those cashing out of the tax-free Ponzi scheme we call farming:
"A typical dairy farm in 2009/2010 carried approximately $6m of assets, $3 million of debt, earned $850,000 in revenue, paid $115,000 of wages and paid around $11,000 in tax (the average share-milker paid tax around $33,000). A software business with double the revenue would have no debt, has $100,000 of assets, pays $600,000 in wages and pays $100,000 in tax. The New Zealand version of the Dutch Disease has made us poor - farming is generally a low margin business so there are fewer spillover benefits to the wider economy."
Cheers, Les.


Les Rudd - Hmmmm....interesting comments........farming is low margin........funny though it provides the most basic of requirements for human also earns export dollars so all those electronic components required of the software industry can be purchased.  Could the software industry exist without FOOD ????
If your talking spillover benefits maybe you can provide proof that there are fewer spillover effects to the wider economy from farming.  Seems to me like everyone gets some sort of benefit out of farming.

Roger - referring back to the article on John's blog:
"KF: 2011 saw the highest average sales tax rate for America. It seemed according to Vertex, there were 542 new sales tax increases or changes throughout the American States, and where UMKC is based, they had the largest rise in sales taxes, some 19% – from 5.3% to 6.3%. Why is there an increasing reliance on these user pay-type charges?
MH: Because if you didn’t tax consumers through the sales taxes, then you’d have to do what governments used to do and tax real estate! And if you taxed real estate, then it wouldn’t have as much money, rental income, free to pay the banks. And the idea is to free all of the income from real estate rent and natural resource rent so that instead of this being the tax base, it can be paid to the banks and the financial sector, so the financial sector, now that it has become the de facto government of the economy, wants all of the rent that used to be the tax base to go to it. And its aim is to shift the taxes off real estate, off finance, off insurance and off monopolies, on to labour to shrink the living standards as rapidly as it can."
Thoughts mate?

Well Less I have been banging on a bit lately about interest being unearned income, plus a mechanism for the redistribution of wealth. You have just provided proof of that in action. Read that piece I sent to you again :-P Of course tax is also unearned income.
What I hope you can see in this is that a surplus is required fro, those in productive work to pay the interest, and the recipients of unearned income. 

Agree with Mr February & Gummy Bear Hero.
It's insane - NZ borrows heaps of money overseas to bid up it own land prices and then the money flows out again as profits to the big 4 Australian banks.
We can blame:
1)  Mr Greenspan in the first place for letting too many US dollars to slosh around the world, and
2) Our Government being too slow to react & give the Reserve Bank the tools to deal with it.
3) Leaving house or land prices out out of the CPI - its the biggest cost we all face as comsumers.  Having rents alone in the CPI is not sufficient as they have not kept pace with house prices - ie rental returns have fallen.
Only now is the Reserve Bank directing the capital reserve ratios to help manage the leverage in the market.  The Reserve Bank also needs to be given the mandate to manage the migration rate (house prices strongly correlated) & LVR as well as capital reserve ratios.
I'd also go as far as saying that the Reserve Bank also be given the mandate to set how much Kiwis are forced to save as compulsory savings and also the amount of tax paid on cash deposits in the bank.  The reserve bank would then have a number of levers it could use to better steer the economy.
Furthermore local government needs to be forced so zone enough land out to the planning horizon so that the supply of land prices is not artificially constrained.  It will be interesting to see if the coming RMA changes by the government go that far.

Exactly GBH - and people just understand the difference between good debt and bad debt (dead debt).  Maybe we should have a mortgage/borrowers tax on housing......hehe......I'm cringing at the abuse........but at least it might slow down the borrowing in this sector ...... realistically all this bloated housing debt is as bad as the Govt debt it does't produce anything just bleeds the economy slowly of all value.
Bruce Willis is definately on the right track and he should be obtaining a reducion in all the compliance BS at the same time because that is costing the country far too much and more productive money is swallowed by the system. The way things are going we are going to have to get a permit to wipe our proverbial rear ends shortly.
The Nats need to take a hard pill and tell everyone that the country simple can't afford Govt and its Agencies at the bloated levels they are. The only people I know that will resist any changes are the public servants and these public servants are suffering from spoilt child syndrome, everyone else is disappointed that something hasn't been done. These public servants need to be reminded that their positions can't exist without private enterprise and that private enterprise is struggling under their over-bearing weight.
Someone commented on,  that Non - resident short term parking of money in NZD could attract some sort of fee/tax.

Someone commented on,  that Non - resident short term parking of money in NZD could attract some sort of fee/tax.
That was me.Lets expand the problem.
One of the problematic issues is with the short term fluctuations in the currency, a substantive issue is arbitrage ( the so called cash and carry) where you can borrow money in a  low interest regime say europe,and park it overnight or for a week etc at a higher rate,this a large portion of overseas inter and intra financial swaps.
The second and more important part is that these can effect the longtail investment position by the hedging component of longer then 1 yr interest positions ie the short levers the long    ( tail wags dog).
If say an increased short term non resident WHT would effect the CCT it is difficult to ascertain,a cut of the action is always nice on the current ac however eg Switzerland.
As an aside the debate on the Nation had one take home message the high TWI is unsustainable to the NZ economy.Changes to the RBNZ may not necessarily be a silver bullet,but a wider discussion is necessary which is why it should go to the select commitee.
Quite clearly the status quo is not an option,and fiscal policy to investment property needs to be debated as well,better signalling or nudging in clear language might be a simplistic option a point quite made by Feely of the SFO on fraud  in the Earthquke reconstruction this morning ie rather then try to fix the aftermath,we will prevent or constrain the problem.
As we see from the aftermath of the finance companies prevention would have been cheaper.

Have you any figures to back up your assertion re compliance?  Hint -- look at the cost of leaky homes, or earthquake builidng failures, or industrial accidents.
The ones with the noses really in the trough are not public servants but farmers and industries getting large carbon subsidies and investors (remeber South Canterbury finance).

Andrew R - I know exactly how much time and money I have to spend weekly in the office completing compliance tasks and my productivity is severely affected by this time and money sucking.
You state "Hint - look at the cost of leaky homes, or earthquake building failures, or inductrial accidents". Think you have just proven that my point of view is right - we have had all this compliance going on and look at the problems we have.  If compliance worked we shouldn't have leaky homes, building failures or industrial accidents. So I assume you like propping up massive failure within the system.
Public service cannot exist without private enterprise in a democratic country for it is private enterprises funding via taxes that allow the public system to exist.
You forget that every time you breath out you are exhaling carbon also. And while we are on the topic of carbon - how much carbon do you think a farm emits? And how much carbon is absorbed from farming?  And maybe you should consider why most forestry planted pre 1990 didn't get the carbon credits that the forestry produced? Answer is because the Govt took those credits.

The vast majority of the Govn spend is Education, Health and WINZ....its money actually going out to help people and not being spent on public servants.  So in terms of resist I think you are very much mistaken, just try and curb WFF for instance.....
Tax on housing isnt needed, except a CGT... just bring in a LVR...aka Texas, seems to have done well there...
I certainly dont see why a tobin tax cant be brought in to quieten things but that wont drop the exchange rate....Given a lot of the volitility seems to be specualtion/gambling maybe taking a cut isnt such a bad idea.

Steven - maybe you should visit the Libertarianz website and you can view exactly what is spent and where in regards to you income tax. I think you might be surprised.

I find FOX news funnier.

At least Bruce Wills hasn't made the same mistakes as Matthew Hooton over at NBR:
Note Raf Manji's comment.

However Bruce Wills and Matthew Hooton are both wrong:
The overvaluation and volatility of NZD could be reduced. Before getting to the print stage we could lower the OCR and restrain inflation by other means. However, note that some rightly point out that fuel cost would increase, and this in itself would help restrain the main driver of inflation, the non-tradeables component associated with housing, at least that is what Don Brash was thinking once:
Don B was advocating varying fuel excise tax to supplement the OCR. However if that effect was considered undesirable other money volume ratios could be used to restrain inflation and improve savings (eg. ban covered bonds and legislate that all bank fund be domestic.) and fuel excise duty could be reduced or repealed along with GST on all foods and the resultant lost tax revenue replaced with a land/asset tax and CGT. How about it Bruce?
I don't disagree that there are some dumb regulation around and government spend too much and we should reduce both. However, we also need reduction in housing and farm (private) debt as given the fraction, this drives our dollar more than government debt, so do you agree with policy that will reduce such debt? 
How about it Bruce?
Cheers, Les.

Government debt is dead debt?  Does that include debt to pay for infrastructure?  Does that include counter cyclical debt e.g. unemployment benefits which help keep money ciruclating and private businesses going? 
Remeber that in a depression government borrowing and spending compliments and props up the private sector

Andrew R - you can't take money out of the productive sector and relocate it to the public sector, who do not have the ability or necessary entrepreneural skills to reinvest it productively. To increase the size and scope of the productive sector the money has to be left there which then has a positive flow on effect into the wider economy and increases employment opportunities.
There is only so much money that can be removed from the private sector by Government and its Agencies as a saturation point is reached and when the private sector can no longer carry the cost of Government and it's Agencies then the pack of cards falls over. The full costs of compliance are not known to those who do not work in the private sector as these people do not have to fulfill legal obligations required.
You seem to be assuming that a Govt and its Agencies who's whole existence is reliant on Private Enterprise as being better able to invest money better than those who earned it in the first place, well if they were so good at investing and so knowledgable how they heck did we end up with so much debt, so many people unemployed, or on other types of benefits. As soon as Govt or its Agencies touch anything we have far larger problems than what we  started and I'm afraid everyones is worse off because of this. Government doesn't solve unemployment it keeps the system going. Why? If everyone was removed off the unemployment benefit tomorrow and into a job, you would have the entire adminstrative personal lining up for a benefit the next day. Govt has been creating jobs for years which hides the real problems in our economy. In fact NZGovt  is going to have $48 billion worth of debt which is going to cause sigificant problems. There is only so much tax that can be obtained out of the system to fund this debt as business will reach saturation point and many will go bankrupt.

Notane - yes, we carried an increasing plethora of rules. Many driven by fear, of course; leaky homes, reduction of personal wealth via same, etc.
Only a society with a surplus of energy, can afford the rules, and their enforcers. We will, therefore, see rules relaxed, axed, or bypassed as time goes on.
Not that the process will help those businesses; it's not rules or Govt that is their problem. Their problem is finding customers whith the energy available to have generated real wealth to purchase with.
That's the joke with the 2-page bleat in the ODT today. Pechinet, sorry Alsuisse, sorry Anadarko - please come and use us, we're too stupid to know better, and we think gearing up to extract a finite resource - a carbon-emitting one - is the way to go. No matter that by the time the stuff is extracted and burned, many of the flat-land-located businesses will be underwater. Both ways. No matter that we are squandering the time remaining to get ourselves onto a sustainable footing.....

Mr Feb, I think you mean billions, and NZ Govt debt is forcast to be $78billion by 2016 (without asset sales).
Obviously our foreign debt is not considered a problem to currency traders, in fact they must love our "low" levels of foreign debt because they are pushing our currency to levels not seen for well over two decades.
The solution is to be pragmatic, join in and print, baby print!  NZ should print currency NOW while we can and use that money to repay debt.  That would put us in an incredibly strong position NOW with reduced Govt debt and a lower dollar.  AND an incredibly strong position later on when inflation bubbles through and interest rates rise.
Or we could do nothing, muddle through and get nowhere.  Then when inflation comes (and it is coming) find that we are hugely indebted with a falling currency and a depression like economy.

print, baby, print?
Ahhh. Got a few mortgages you want to see reduced in real value by inflation have you?

A little QE won't cause inflation if the printed money is only used to buy Govt debt and all Govt spending remains the same - look at the US example.
Inflation is coming either way (whether we print or not), so why not take advantage now, reduce the currency and reduce Govt debt?
BTW, my mortgages are perfectly under control (thanks to being well insured) and will easily take care of themselves!

Shouldn't we look at the effects of QE/money printing, it manipulates the currency of the country and is nothing more than a subsidy to the country doing the printing.
This money printing is protectionism of producers who trade in the global market.  Free trade is an illusion as the countries doing the printing can manipulate their currency to achieve the same outcome as subsidies or tarriffs and the cost of the money printing is paid for by the same people as usual "the taxpayer".
All currencies should be floating and all this pegging to the US etc abandoned.

I'm not sure printng is a good idea. The last time the Reserve Bank printed money to bring down the exchange rate, a good proportion ended up in the housing market. Nowhere else for it to go. 
Second, the government authorised the RBNZ to intervene in the foreign exchange markets, unheeding of the catastrophe endured by the UK Treasury at the hands of George Soros.
Nevertheless, the RBNZ waded in, beginning June 2007, selling NZD, presumably against USD. See the graph immediately above to your left and the woeful returns from this activity in the linked spread sheet.
But, more important to those responsible was the unsterilised NZD ~ 4.00bn injected into New Zealand banks' deposit ledgers.
The liabilty had to be matched by an asset. The RBNZ indicated the FX invervention strategy was a long term cycle trade. So where better to lend $4.00bn than the housing market? It's two assets by the way - the recorded mortgage and a lien over the property - but that's another story.
So who is and still is responsible for the thick end of NZD 8.0 billion government controlled funds supporting the price of a good often confused as investment rather than consumption? The associate finance minister or the RBNZ? I suggest both and in my view Dr. Bollard should know better.
After National's tax cuts some could now purchase Government debt now that its markedly grown since then. 
I doubt our creditors, would take it well that we pay our debt with printed dollars. We're not the United States. We don't have its huge militaryt that ensures ithe Dollar remains the world's default reserve currency.

Mr February, maybe you could reconcile the outstanding $72.6 billion interest bearing Government debt recorded by the RBNZ here with the much lower $48.383 million (sic) figure you quote.  

Excellent article.  However this problem of ever increasing Governemt debt and spending will be difficult to solve when, throughout the OECD, more than 50% of the population are net beneficiaries of Gov't expenditure.  Who is going to vote for anyone who proposes to cut their Gov't entitlements.
it is a shame that you mentioned Ronald Reagan as the blowout in the US debt started at the begiining of his Presidency.  To paraphrase Milton Friedman "We are all Socialists now".

In 2000, when Sir Michael Cullen delivered the Budget, central government expenditure stood at $34 billion. Eleven years later and Bill English presided over $73 billion.
Over the same time period Agriculture debt has increased from 12.5 Billion to 49 Billion as of July. As most of the increase in debt has been on Land price inflation ( by increased land capture eg Crafer),as opposed to productivity (There will be a nice pareto fit in the data somewhere) asymmetric distortions of numbers is more unhelpful and increase polarization.
Similarly household debt has moved from 63 Billion to 176 Billion over the same period.
Clearly we either need  to address our behaviour,or be nudged in the correct direction,by a change in the tax system with either  property tax,or capital tax or an asset tax of some description,wishing for the tooth fairy is not an option.
Bollard was quite clear in this regard,that the TWI will persist at high levels unless we restrain from borrowing from foreigners to purchase land and  houses.
Clearly asymmetry is evident in the tax system at present,the distortions will only worsen is because we make them so, there needs to be some more informed debate and it might be better if it was sooner then later.

Thank you Bruce
Well written !!! I add 
The fact of the matter is that the political and bureaucratic lunacy has been allowed to carry on  spending and borrowing willy nilly and the the goverment and regulators justifying these decisions  as fiscally responsible economics . It would appear that the directive "game" is to  borrow more to  keep infustructure and employment going as best we can. This would be in the hope as to mitigate the impact of the financial crises and the potential social impact on the people that live in and around the main city's and to a certain extent rural NZ ( of course doing nothing would be total political  suicide ). Now we have no choice but  to "farm" "tax" and carry on borrowing our way out of abysmal mess we have created for the future.
I agree that  a regulatory standards bill with teeth is well over due to pull some of these nutheads into line . However it will be a difficult ask , even with a better regulatory structure and political endeavour  we will still  have people with vested interests and polictical agendas that undermine such endeavours . You hit it on the head Fisical Policy are words that have been banded around for years but now the time is up that this Government has a great opportunity to lead from the front. 
If they don't  grab this opportunity now they will lose the next election and New Zealanders will continue to leave this country of milk and honey and we will slip hopefully not into the quagmire !
Agreed major change in attitude needed : Quote hi I'm from Government Dep ???? How can I support and help you today

Just so we can try to be complete at the 'pet-shop' let's not forget the RMA, land-supply and immigration effects ..... oh and if we are out to defend the boys on The Terrace let's not forget one of their key thoughts - the absence of effective capital, land and  gains taxation, re. John Whitehead and Alan Bollard. 

If over ambitious farming investment ( e.g.aggregation of other farms) using overseas sourced mortgage money, had not been exercised, then farm prices and hence overall borrowing would have been reduced and like first time home ownership in the citiies, young farmers would get into ownership more easily and quickly.
It is greed as much with farmers as it is with city dwellers.
At the top it starts with the banks offering the money and ultimately with the RB and the Government letting it all get away.
The Verdict:
Government- Hopelessly out of their depth
RB- Not preparred to action threats to the banks
Banks-  Irresponsible lending
Farmers- Eyes bigger than their ability to manage debt
Population as a whole - Financial ignorance and  stupidity
To Bruce Wills- Take responsibility and get to understand the whole picture , not only your farming biases.

"That is one mighty buffer against the kinds of natural shocks we encountered in 2010 and 2011."
Natural?.............there was nothing 'natural' about it!  You may go on about the Government debt and spending...bla bla bla.........but what is ALL the NZ private debt (including farmers) doing to our precious dollar pray tell? 


Why not fix both problems if they can be fixed, Mr Wills? Are we only capable of one debate at a time? I would contend that fixing the current account first will help fix the fiscal deficit; and without doing so, the chances of fixing the fiscal one are very low. Nevertheless on government spending, I agree the level of debate could be dramatically higher. What departments have spent the extra $17 billion? How much extra on welfare other than pensions? (I suspect not that much). How much extra on pensions, and separately on healthcare, with an ageing population? ( I suspect a reasonable amount). There is some reference on a Treasury site to spending of $13.6 billion this year on Christchurch earthquake related expenses, which would make that a majority of the $17 billion. (I may not be comparing apples and apples here).
The following paper actually gives a little more granularity to the debate, and for the most part, seems to suggest NZ is about average compared the the OECD on government expenditure in many areas. Doesn't mean we couldn't be better of course.
Which expenditure would you pull back on? Not fix Christchurch? Lower, or means test pensions? Have the unemployed not be paid? (even though they are not a big share of expenditure, as it happens)? Is there real bureaucratic fat in Wellington? (There may be, without the data its hard to know). Please note, I'm sure in many areas you will be right, but we do need to get at least one level down in detail. Even if you would argue successfully for some of these changes, they will be politically very difficult. As it happens I think your argument re local government is more compelling; I wonder why their costs have gone up by 60-70% after inflation in 10 years, but overall shaving a billion off them won't make that much difference.
To some of your other points:
You say:
 As a country and farmers included in this message, we need to stop living well beyond our income.
I passionately agree. I'm sure you understand the main score in this regard is the current account deficit, and not the fiscal one. And fixing the current account deficit requires exchange rate and monetary management. Fiscal changes can help in the margin, but are relatively trivial.
You say:
you are dreaming if you believe our Reserve Bank can set and then defend the exchange rate against all comers.
Nearly every other developed country on the planet, apart from Australia; appear to disagree with you. Have you actually looked at some of their measures? Defending a high currency to keep it up is a challenge. Managing it down is a relative doddle. 
You say: Until government reins in its massive spending and borrowing, any intervention in the dollar would be ineffectual and worse than futile.
I believe the opposite is true. Until the exchange rate and capital flows are addressed, with a clear target something like a balanced current account, then any improvement in the fiscal position will be merely benefitting overseas investors. If we do improve our position, then all those surplus counties will just pile in with more money into NZ, lifting the exchange rate, destroying more jobs in manufacturing, and reducing your income along the way.
Conversely, fix that, and more NZ money will be spent here, more people will be productively employed, less welfare; higher exports than otherwise would be,higher taxes without higher tax rates, so lower deficits. 
I absolutely agree that we could do with a better debate on both issues. The current account/ exchange rate one has certainly started, and I believe is the more urgent one. But by all means let's have both.

Er, yes, but if the RBNZ just put the OCR up 2% we would all get the message to save not borrow. Well, wouldn't we? The repayment of debt would presumably cause an outflow of NZD to repay overseas lenders. The outflow of NZD would then cause the exchange rate to fall. The productive economy would grow and the finance sector would shrink. I mean, is it really any more complicated than that?

Yes, drive up interest rates and you will see the carry trade in full flight which will drive up the dollar which will have greater inpact on export sector (double whammy if their debt servicing costs go up as well).
The dollars goes up making domestic production uncompeditive against cheaper imports, unemployment goes up, reduced taxation reciepts which then further pushes out budget surpluses....... and on its goes!!!!!!!
Not really that complicated is it?
P S if you believe higher interest rates on their own will sudenly create savers out of thin air I am not sure its a simple as that. 

yeah,.,Right.  Higher rates in the last decade.  Did those rates encourage saving? Or a massive borrowing splurge for property?

With you there Gibber - low rates attract carry trade merchants - I was a professional one for twenty years - raise short end rates and invert the curve - what's there to carry except losses. 

It would have to be more sophisticated than simply putting interest rates up.  Yet to see any signs of sophistication or thinking outside the box by the RB or the government. So not going to hold my breath.

Well, that's what I was starting to question. Yes, the OCR is a blunt instument and the exchange rate might spike up immediately. I can't see how the exchange rate stays up for long once people start saving more. Its a tough call to make though.

Good point, so the proponents of higher rates believe it would be good for uh something like say property, while low interest are also good for uh property.
Right now low rates are good for not sending us into a recession, simple....I'd even drop the OCR more to try and compensate for the high exchange rate.
But then unlike pollies I lack the bigger picture or some essential and over-welming piece of the puzzle that says no you cant do that.
The other thing I'd do is borrow at the 10 year rate to invest in paying back infrastructure (tallow to bio-deisel, hydro, geo-thermal), I think that rate is investors are willing to lend at a rate that says low inflation for a decade....spend the money on moving to renewables....create some jobs and future....but oh no we cant have that.
At some stage I think its going to be obvious we should have been doing the aboves...I wonder how the voters will treat these Pollies then.

Steven I can agree with a lower rate scenario as long as the nation is prepared to discount realistically projected forward costs of pensions, healhcare etc back to present values by the 3.6% rate you mention - none of the historical stockmarket 7% plus return nonsense that never gets realised. Equally, the likely higher present value liabilities should give cause to take immediate action to reduce our current standard of living to a more manageable.level.
And I don't mean the scorched earth approach of firing the indians while the chiefs remain unaffected.
Zerohedge highlights the idiocy of the Illinois Teacher's pension fund when it cuts the anticipated fund growth rate to 8.0% from 8.5%. Calpers the giant California pension fund just managed a measly 1% return.
Unrealistic growth forecasts have to be downgraded along with current costs to reflect the reality not the forlorn hopes of the ever greedy entitled amongst us. 

I dont think its a case of "prepared" its a case of how its going to be.
Reading on say haiti the forest removal on that side v the other is drastic. It is an indication that over-population v what the land can support can be met short term at huge destruction of the under lying capability to support. 
Same with the stock market, and so many other "assets". I think we have been doing a "haiti" for many years (short termism destroying underlying capacity)....hence I think pension funds believing they can get 8% are in la la land....but then they are not there to be custodians....they are there to rape and pillage.
What happens to haiti is they starve to death, same I think will happen to the stock markets and assets....the PE ratios are insane....
Just read the comments that the NZ stock market watchers make on how the NZX has been gutted of value and that the asset sales will inject much needed value to entice "mom and pops" back.
If that isnt an indication of "land exhausion" I dont know what is....time to move on to a new piece of "land"  Time to get more canon fodder (mom and pops) leured by greed so we the sharks (pension funds, stock brokers and "professionals") can continue to feed.
Reduce our current standard of living, well the least damaging way to do that and impact the economy the least and curtail the deficit is a drastic tax increase....
"us" yes well what can you say......
Conclusion we will asset strip and destroy capacity because that isnt felt short term by voters who dont want to look anyway....
So its going to be,

Too bad profit driven corporates only consider the short term. They already have the infrastructure delivered to them by the State. Why invest in improved infrastrcture when you have a captive market? Why not just sit back and let the ROI make quarterly profit figures look good and smugly collect easy "performance" bonuses?

indeed, however I think that is going to change and drastically.  The consumer/voter has thought that for 30 years "everyone" including themselves were doing well and better...that was the upslope of fossil fuel production...growing. A bigger pie to share out and as long as enough thought their share was getting bigger, no problem.
Now the pie is going to shrink plus from that smaller pie is the debt servicing and payback....personally I cant see how it could / can be done. My conclusion is jubilee/default.

Hat off to you Bruce.

I just wish I didn't care but like the rest of the posters here I do.  Ive known Bruce most of my life, and like Bruce Ive seen many farmers work hard and go backwards except for a few heady days in the 00's. Many others managed to hold still while a few borrowed to the hit and made a capital gains killing, they just didnt know when to jump ship.
 The problem with the state sector is thats its like an iceberg what you see is only %30 of its total cost.  I will say again what Ive been on about here for years. In 1985 when I leased my first farm, my costs were %35 of my gross sales in 2010  they were %85. In 2007 -9 I lost between 80 - 120 k a year because of drought, with the high costs its going to take 10x as long to get back to where I was in 2006 as it would of done if my cost had been %35 of gross sales like in 1985.
  Mauldin wrote the 10 most import issues facing america are
1 the Deficit
2 the deficit
3 the deficit
4 the defict
5 the defict
6-10 everything else
 got the drift.
  If I know it and Im a simple sheep farmer, then most of the RB, Treasury and the cabinet must know it. So whats with all the promising and spending when they know its not going to be easy to pay back the borrowing . JKey has started us down the asset sales path but the money involved is only a few  months of present government borrowing.
  What the hell is going on, we have a beautiful country and some fantastic people, lets not turn it into a tragidy.
Thanks Bruce for a great article.

The deficit is minor and the problem is reversing it with austerity recessionary.  Just look at the effects on Ireland, UK, Greece, spain for how cutting the state spending is counter-productive...Most of what Ive read suggests that cutting $1 has a multiplier effect in that the Govn loses $1.60 in income....vastly in-efficient.  Sure cut state sector jobs, they rthen go on WINZ....great idea that.
Iceberg, we can see where the money goes. The vast bulk goes on three things, education, health and OAP/WINZ.
Farm costs, and how much is extra debt taken on to buy over-priced farms? looks to me like that is a significant % of the cost increases....self-inflicted then.
Asset sales are pointless, especially as we can borrow for 10 years at <4%....what we need to do is borrow at that rate which is in effect after inflation almost free and put in assets and fund inovation that give us a payback. Instead we'll waste what few years left before we come off the peak oil plateau into very expensive and even difficult to get fossil fuels...
Then watch the farmers scream as their life blood, fuel dries up...

If farmers life blood is fuel, steven, then it is also the life blood of food supply.  Farmers have the ability to feed themselves - urban populations don't.  It won't be farmers screaming first.

very true, its also global food prices until we donnt have globalisation or transport energy makes it un-economic.
Right now in the shops I see shell fish etc from Thailand, china and vietnam, (I wont buy it) I assume ours get a price premium in Japan....

You are making a basic mistake steven that most non-farmers make in your assumption re costs - that is that like wage and salary earners farm incomes never go down.  They do. Farm incomes fluctuate from year to year.  As a % of cost increase the biggest increase we have as a non-herd owning farmer is in compliance costs, ACC, and rates. Our rates from 2007 - 2008 jumped up 63.9% in one year and despite land values coming back (for rateable purposes) our rates paid have continued to increase every year. For the 78% of dairy farmers said to be still ok at current payouts interest will be down on the list of cost increase concerns.  NAIT tags, which became compulsory this year for bobby calves, are $5 each. Why do bobby calves going to slaughter need NAIT tags? They have a bar coded works tag that can be traced back to the farm that is also compulsory. So the duplication of beauracracy compliance goes on.

No I have not made that mistake. I come from generations of farmers and rural upbringing. Im used to dodging cow pats on the road on the way to school, or the milking plant starting up at 5am every morning.  Many of my friends and peers now own the farms our parents / grandparents did. Ive also worked for myself and for small flow is always an issue.
I agree or I have a concern on the level of compliance costs....but at the same time I have concerns that there is damaging being done to the environment that isnt being costed in farms expenditures. 
Rates seem crazy....yet they continue to climb at 2 or 3 times core inflation. That like fossil fuel use cannot be sustained...expotential never can.  My rates are over double in 15 years  70/15 = 4.7% on average per annum (actually slightly higher probably over 5%)....that is more than GDP growth runs at, that cant continue.

yada yada, ACT escapee....alert....alert....austrian failure....
Living beyond our means, like borrowing huge amounts to buy over-priced farms based on payouts at the top of their range....then book loses and cash out at the end no CGT....
one hell of a risk that if we go austerity will bite really fast.
Everything is inter-linked and way to complex....what we have seen is individuals and sectors act in a parasitic way on the economy....that has to stop because its killing it.

they were just responding to market signals with a bit of government incentive along with it.
 Farmers always borrow what they can, farm prices are set by the banks, farmers pay as much as they can for farms or as much as the bankwill lend them. Its why JKey is now pushing corpoarte ownership of farms, how else will one keep the price up?

The price in a non-ponzi scheme should be determined by the return. For me whether its owned by corporates or individuals should make no difference.
The only way the corporates can get their money back is in a state sanctioned monopoly where they can extract blood level rents.
For instance have a look at the chicken farming system in the USA. The farms are owned by the farmer but its a franchise where the farmer is forced to by feed at the price set by the corporate....all the risk and debt is on the farmer...all the profit is on the franchise holder.
The price otherwise wont be kept cant as the inputs to food is 10 calories of fossil fuel for each 1 of food. When the price of fossil fuel is x2 what this economy can stand its not going to grow anymore.
So the PE ratio is a pnzi scheme level, ppl are around me already starting to grow their own due to csaot and quality.....and the counter to that is the legislation trying to stop that....
Its just more and more stress in a cracking system.....sooner or later the voter wil back lash I think, no Im certain, Hungary threw out Monsato, Argentina nationalised its oil industry....
Its going to be a bunfight IMHO and the winner(s) isnt certain.....ever watched Hunger games?
Not a pretty thought.

There is a difference between corporate and family farm ownership steven.  Corporates can afford to negatively gear their farms for tax purposes.  Individual farmers actually have to make a living off it.

until those tax purposes go.
Not that I think they should be there now, it should be a level playing field...if its like you say then that should be fixed.

Spot on there CassO....which highlights the potential for shifting the tax burden with more Corporate farming.
to whom...? if you follow me.

Mist that comment isnt especially aimed at farm/farmers.  It can equally if not a lot more so be pointed at the property madness, and especially the share market.  Take shares, the dividend is so small giving an inept P/E ratio that ppl aim to make it on the capital gain which is tax free.  Sorry but I consider that un-sustainable, you rely on a bigger fool/greedy to sell it to and hence a ponzi scheme.  I would suggest the same thing with farm prices.  You mention high suppliments, these are fossil based....all you are doing is taking a finite resource and converting it to food...What do you think will happen when such is un-available or costs so high you cant afford to apply it? bye bye output.
Why are land prices so high? because ppl were / are prepared to pay them and lenders more than willing to lend to NINJA's.....(crafer jumps to mind)
Yes its insane, frankly I look at the way things are being run and as has been said its a bubble in everything and its going to pop. Meanwhile the top skimmers are the banks and "investors" who pretty much have a risk free rate of return as they know full well our Govn(s) and hence you and I will have to bail them out when it goes pear shaped....assuming many and that will be many are not bankrupt....I wouldnt be surprised is debtors prisons make a come back aka the victorian era.

@ Stephen Hulme | 22 Sep 12, 11:19pm New

"Mr February, maybe you could reconcile the outstanding $72.6 billion interest bearing Government debt recorded by the RBNZ here with the much lower $48.383 billion figure you quote"

Both are from RBNZ. I think one series is gross and the other is net i.e. after deducting international Crown assets. I am not 100% on that. There's probably an explanation on the RBNZ www.
The $72 billion is gross D1 Total Government securities on issue

The $48 billion is I think net of overseas financial assets. E3 New Zealands overseas debt

re what farmers pay in tax.
perhaps someone  could explain how GST benefits the economy.Like many farmers  I pay around $100k /year in GST.... after Fonterra has paid it me to me.
Is this not a direct contribution to NZS economy?

Cowhsit - well said.  People don't realise how much agriculture pays in GST.  And all GST registered people have to sit down and do the obligatory paper work at their expense to comply with the process. Itcompliance is nothing more than slavery and servitude. You only have to view some of the comments on this site to know who is registered for GST and who isn't.

If you have a reasonable accounting system a gst return is just putting numbers on a form.  Takes very little time.  (At leaste that is my experience).

Andrew R - Putting the numbers on the form is the simple part takes stuff all time - I agree. However your missing the point if you think that is all that is required and are not including the preaparation time before those numbers can be placed onto the form. It is the data entry into any accounting system, the coding of all entries, invoice matching to bank or producer statements, reconciliation, etc that takes time.  The more entries the business has the more work that has to be done. 
There are many business's in NZ that have to employ full time data entry and accountancy staff to ensure the work load is completed on time.  Rather a large cost for business for who's benefit?
I object to sititng in the office doing data entry for compliance purposes. Then I have to sit back and listen to Politicians making promises to get elected at my expense and witness daily the extravagant expenditure on wasteful unproductive people and services.

Andrew R - The main purpose of all the accounting software is to comply with tax obligations. Most of the software is useless at the important components that business needs and so business has to work a separate system for viewing profit and loss in specific areas.  While the system I use allows for budgeting as well it still not adequate for the kinds of figures I want to run through for analysis. And it is this work that is the important part of all business efficiency.

Are you saying that keeping accounts is of no practical use and that it is forced on a business because of the need to pay taxes?  An interesting approach to business.

Andrew R - You obviously don't understand what I'm talking about above to make that statement. 

Its part of the tax system.....I pay PAYE and effectively 45% tax, what you seem to be saying is you object to paying any tax at all.....assuming you are "bright" enough to gear up debt to substantially reduce business tax yet cash out tax free at retirement bwcause we have no CGT....maybe even with a poor income claim WFF and maybe even WINZ...
makes the like no better than the dole bludgers really.

Steven - you state you pay PAYE and GST, so do you receive wages/salary? Because if you do someone else is sitting down and doing the necessary compliance on your behalf and you are are having this done free of charge. Wage records actually require quite a bit of time for each person. Processing the hours someones worked is simple but then there are all the other add on components that the employer is enforced to comply with on your behalf.
Paying GST at point of purchase might be the end of your obligations it is only the start of the registered persons obligations.
You obviously do not understand the compliance issues for business judging by the comments your making. Maybe before you go preaching about what business should and shouldn't do you should actually get into business and do your share of complying.

Mr Wills is spot on, I wish I read more economic commentators talking as much sense. Government spending in NZ is a disgrace and has been for many years.
Its one reason why I don't invest in NZ agriculture, although I like the sector, but NZ and Australia are in for a shake up and I expect delusional asset prices will be in for a correction.

How about not advertising an alternative, maybe then we'd consider your opinion at least not commercially baised even if still ACT+ politically so.

I am actually putting my money where my mouth is, which is more than you can say for many.  You don't have to take any thing from my opinion, if you don't like it ignore it. But please consider this, before you get on your high horse. I have got involved in this business as a result of trying to find a place to put my savings that was going to give me a better than inflation return, at the same time  follow a global trand that will be difficult for meddling politicians to push of course. Now I could be wrong or I could be right, thats up to you to decide.
The attitude of so many people towards any one trying to make a living, self employed and taking responsibility for their own future constantly disappoints me. Not all entrepeneural types are crooks, much as many would like you to think, as they ask you to put your faith in central planning.

I am having trouble working this Bruce Wills out. Doing a search on him he doesn't seem to own any farm land. Doesn't seem to have any mortgages yet he represents some of the largest land owners and borrowers in the country. By the sound of some of his comments re banks etc it figures. 

There is no excuse good enough for pouring a highly toxic, slow killing, indiscriminate, inhumane poison over our forests and waterways. Short sighted behaviour that will destroy our so called "clean, green" image - along with our rural export and tourisim industries.
On the positive side, farmers will not need to worry about NZ having a dollar value then.
Watch youTube videos via and review the 2011 PCE report at
As 1080 poison does not have an anitidote - I hope you don't get any in your water, milk, or food.