How to deal with a recession

There’s been lots of talk about a looming recession this week.  It would be interesting to see what the other parties’ policy proposals would be in the event of a recession.  The traditional conservative response would be to balance the books by cutting expenditure; Tighten your belt and tough it out.  By contrast you’d expect the traditional Keynesian response to be increased investment in the economy to get it moving again. The neo-conservative approach seems to be to increase spending by cutting taxes (and thus also government expenditure). 

Michael Cullen, during the prosperous times, has shown glimpses of both traditional conservative and Keynesian approaches to managing the economy.  So it’s hard to pick exactly what he would do if the economy did turn.  Most commentators seem to view Bill English as a traditional conservative and John Key as a neo-conservative.  But other than National’s strong belief that tax cuts will win them votes again it is hard to pick what their approach to economic policy in a recession might be.

Without having seen the Green’s economic package for the election (it’s being worked on) I imagine one key principle that the Greens would apply when dealing with recession would be that those who are most vulnerable to unemployment or poverty should be protected. The second principle would be to take the opportunity to restructure our economy –growing our way out of recession is no value if the growth is unsustainable or harms our communities and environment.  The Greens would protect our economy from global instability by rebuilding the ability to do things for ourselves. That would mean a much stronger focus on small scale local food production and manufacturing.  A Green solution to recession would be about creating jobs and industries that were less reliant on oil.

88 thoughts on “How to deal with a recession

  1. Andrew

    Your accountant probably won’t charge you to hand you the brochure he/she undoubtedly has pre-printed. The accountant I visited didn’t need more than 10 minutes of time to explain it to me and didn’t charge me a dime.

    Ringfencing – This piece of “private slang” was discussed and described by Dr Cullen a year ago to describe separating the treatment of the LAQC for housing from the LAQC in general. It is also fairly common in Australia for some reason. I understood it immediately and I’m from the USA. I apologize for I truly did not “get” that you truly didn’t know what that was.

    Finally, the usage of housing as an investment/speculation displaces and destroys the ability of people who simply want a place to live to obtain one. In this regard it is NOT like any of the other investments, businesses or speculations that are available. I am NOT interested in running my own business. I am interested in a house that my family can and will live in, a house that I can improve (and by GOD the houses here need improvement!) and one that I don’t have to worry about being sold out from under me.

    I agree that in some ways the US market is unlike the NZ market. In one significant way they are deadly similar. The government is encouraging people to speculate in housing here… differently from the US and perhaps in a more sustainable way, but the effect on people who earn a living and want to buy a house at a price that they can actually afford to pay is similarly devastating.

    I don’t have ANY patience with this government for all the lies its told for all the years its told them, and I don’t cut defenders of the current system any slack at all. It is MY tax money that is going to the SPECULATOR’S bank even as he is bidding the price of the house I would like to buy out of reach.

    Explain to me the morality of that particular arrangement.

    Houses are NOT businesses. They are houses. Making them into a business distorts the market for houses. Gerrit has an answer which I don’t like but which at least gives me an even shot at getting a house. I get the same break as the speculator. This puts MORE money into a market that is already quite stupid in terms of price and I explained that on another thread. I could live with that perhaps. It isn’t going to happen either.

    respectfully
    BJ

  2. If the market cannot supply housing at a price that people can afford then it is time to interfere with the market.

    i suppose you would also say that if the market couldn’t provide adequate food, the government should intervene in that industry too? you appear to have your head wrapped around this issue bliss, which is to say i agree with everything you said & find it consistent with everything i have said. if we are to single out the property market for government actions inconsistent with those applying to other industries we must base our argument on a claim that having people own their own homes delivers a unique value to society (rather than just to the individuals concerned) beyond what the free market is able to measure, and not base our argument on unjustified claims of entitlement or accusations of inequity in the government’s omission of the extraordinary actions which would create special conditions in that market compared with all others.
    you would probably suggest if people were going starving, the government should intervene by any one of a number of measures – by giving money or food directly to those people, by subsidising food production, by buying food & selling it cheaply, by regulating food prices or whatever. not by by affecting anger that commercial farmers could claim seeds, fertilizers & labour as expenses while home gardeners couldn’t, & that therefore you were paying the taxes to fund farmers!

    at the outset of this discussion it was claimed that the problem was that landlords are able to take all of their losses in the year they are incurred instead of holding them over to a profit-making year. i pointed out that this wouldn’t be helpful to landlords, then someone else explained it pretty differently. then it became apparent this was only a distraction, the main objection was against businesses being able to count business costs as expenses for tax purposes while the same cost incurred by a household did not reduce their tax burden – just the same in the housing sector as it is in all other industries.
    those who had made the vague or incorrect comments have not corrected themselves, but implicitly allowed all the contradictory material in this thread to stand. i’ve asked for clarification, quite the opposite of making a point of being poorly informed, but apparently unless i am willing to pay for my accountant’s time to figure out which comments in this thread are right & which are wrong i am guilty of “persisting” in misunderstanding.
    perhaps the fault is with those who have failed to address queries & failed to clearly state just what their problem is & why they consider it a problem.
    i predict at the end of it all we’ll be left with only two concrete problems: the lack of a capital gains tax; & rent subsidies.
    i suspect the use of vague undefined & ill-defined terms & acronyms, and unwillingness to engage, are simply to obscure the fact that some people don’t really have a firm idea of what they want or what the problems are.
    yes i did say i “presumed” that ringfenced means abolished, but notice i used a question mark, this is clearly a request for information. evidently it is easier to scathe me for not guessing what this piece of private slang means than it is to simply explain what it means.
    on that note let me explain that when i say expansionary or contractionary i’m using the terms technically, not emotionally. i’m not intending that one or the other should imply “good” or “bad” or “like” or “dislike”.

    the US market is not comparable to new zealand’s. the US has had very low interest rates for years, we have had the opposite. the US has had risky & odd banking practices, like enticing borrowers with a low initial interest rate set to later go up to a rate beyond what they can afford, forcing them to sell the house. such a loan is tailored entirely toward speculation. (it would be like lending a worker money to invest in the share market. apparently in 1984 banks here began offering people loans to speculate against the $NZ!) the housing bubble there has been as much a credit bubble as anything else. another obvious sign of speculation in the US market but not here, was the development of large quantities of uninhabited housing stock in the US. reduced sale numbers there accompany reduced prices, here if you see reduced sales numbers, that usually comes with increasing prices (before bouncing back again!) indicating a drop-off in willingness to sell, not buy.

  3. BJ

    Ha ha…very droll.

    It will be interesting to hear the justification for these “tax cuts” after years of telling us they are inflationary.

  4. Andrew

    Since you persist in misunderstanding, and make a point of remaining poorly informed, there really isn’t much more to say. Talk to your accountant about how an LAQC can save YOU money on your tax bills. The net effect in some cases is that you can buy the house for nothing at all. The taxpayer’s do ALL the work. That’s less common now than it was, but it still runs close enough to true to make a big difference in people’s decision making process.

    It isn’t the case that owning a house is a business. We don’t buy houses so we can set up businesses, we buy houses to live in them. Favoring the investor over the owner-occupier IS government intervention. It permits the business model to run roughshod over the family model. It is a mistake.

    Just as your presumption that ringfenced means abolished.

    Is it my imagination? Maybe everyone went out and tied one on and is posting while drunk. How on earth can you get that I mean abolished when I very clearly VERY clearly said ringfenced. ?

    Nor is dropping back from having the highest interest rates in the world exactly an “expansionist” policy… or don’t you see those interest rates as being symptomatic of a problem? You don’t mean to tell me you LIKE Cullen’s policies do you ?

    Bubbles are fragile? What an amazing thing to say. These bubbles are always quite sturdy as they are being inflated… as long as the government supports them by shielding the malinvestments from consequences using taxpayer dollars. When the government stops doing that, either because it won’t or because it can’t, that’s when things get delicate… and it still can take longer than anyone believes from the time the bubble becomes obvious to the time when it finally succumbs to a pinprick of reality. We saw the housing collapse coming 2 years ago in the USA. It was an obvious call… the fundamentals were wildly out of whack… but it just kept going because money kept being created and pumped into it.

    It doesn’t stop until the money stops being pumped in.

    The market IS ALREADY being interfered with.

    BJ

  5. the market isn’t doing stupid things, but quite rational, indeed unavoidable things,

    Markets do not have brains. They can only do stupid things! Duh!

    Markets are especially good at one thing, price discovery.

    Markets do not care about equitable distribution. Famine is not a market failure. It is a market failure if there is food in the warehouses, but if all the farmers grow cotton for the foreign market and the locals starve because there was never enough food planted, that is not a market failure.

    But it sure is an economic failure.

    My point is that markets are not be all and end all in economics. They are useful in certain situations and useless in others.

    Housing is a human need and IMO right. If the market cannot supply housing at a price that people can afford then it is time to interfere with the market.

    Eg., a state housing programme.

    peace
    W

  6. The only reason the market is doing stupid things is because government is doing stupid things.

    the market isn’t doing stupid things, but quite rational, indeed unavoidable things, in bringing the price of housing up as the population goes up. maybe the government is doing stupid things in bringing the population level up.
    simply allowing a business to function as a business, paying tax on profits, & not singling out a specific industry for different treatment is not stupid.
    as i say, if you wish to argue for a special treatment in the case of the housing market, you will need to make your argument based on the social desirability of government intervention, not on faux-righteous anger or “fairness” arguments.

    You haven’t talked to an accountant yet…. HAVE you.

    to ask her what in heck you are talking about? funnily enough no… i thought discussing it with you seemed a more appropriate solution.

    Dropping interest rates is only possible if the LAQC is ringfenced as well

    ah, so expansionary monetary policy is responsible as long as laqc is abolished…. i presume you do mean abolished when you say “ringfenced”? here’s a tip, if you’re no longer sure you know what you mean, or you’re no longer sure you want your “interlocutor” to know what you mean, try obscuring your meaning by using several slightly or completely different words in a row, separated only by / -& use … as your only other punctuation – even where entirely unnecessary! along with copious use of “eh?” it’s guaranteed to make readers first go crosseyed then lose all interest in finishing reading your post! 🙂

    the new zealand housing market has none of the characteristics of a bubble. bubbles are fragile – investors who know they only got in on speculation that prices would keep rising tend to flee once that rise shows signs of stopping. yet we’ve had slowdowns from time to time, we’ve had alarmist warnings from politicians, but prices then go right on rising. it’s been going on for years – must be the sturdiest bubble in history.

  7. Andrew

    With the LAQC they pay mortgage out of income PLUS tax deductions for a variety of losses. The net effect can be quite substantial. You haven’t talked to an accountant yet…. HAVE you.

    Dropping interest rates is only possible if the LAQC is ringfenced as well. Otherwise it can’t be done. Dropping interest rates kicks some of the money out of the system. Ringfencing makes it necessary for investors to consider the actual income available from the property and not buy on price speculation. Taken together they change a lot of things, like the “value” of the dollar here. Why do we have the highest interest rate in the civilized world?

    Your accountant may well have a complete pre-printed colour brochure of just how this works which he can hand you. It isn’t unfamiliar territory for them.

    Let me point out something about people who “realize that if they don’t bust a gut to buy a house now”…

    That phrase has been used for the past 6 years in the US to justify people borrowing far beyond their ability to repay. The bubble here is smaller, but no less a bubble and people who are buying houses that they can’t afford without continuously refinancing against an appreciating asset (the habit here, I know), and without using my tax dollars as a crutch, need to be flushed out of the system. The only difference between here and the USA in this respect is that the first home buyer doesn’t get ANY breaks here.

    However, if you buy a house at a stupid price you are stuck with that price, no matter WHAT the market does. The situation in the US tells us that overpriced houses and speculation do eventually kill the market even with the government tax breaks.

    Gerrit offers that I should get the same breaks… which doesn’t quite solve my problem with the prices but at least allows ME to afford them. You provide the advice that I should just find the money and do it because house prices only go up. Which is not true and I have seen the counterexample to that claim in gory detail.

    The only reason the market is doing stupid things is because government is doing stupid things. The connection could not be clearer.

    respectfully
    BJ

  8. no, it only tells me what i already noted earlier:

    property prices may have outstripped rent for now, but that is only to be expected in a market where most everyone realizes that if they don’t bust a gut to buy a house now, they may lose the chance forever.

    and i repeat people only pay rents out of actual income… and they only pay mortgage servicing out of actual income. so you have no point.

    places far away, where monetary policy is less responsible and hot money can be created…. My answer is to… drop the interest rates

    well make up your mind!

  9. Gerrit

    It is not compulsory (what is the shout about it being required) so whats’ the beef. I had the time and inclination when salaried.

    Sorry… I see that it IS compulsory.. If it is done your way (which is the way the US does it) then buying a house is a tax shelter for a significant portion of your income. You get to keep more and the choices below change so that the folks taking option C subsidize both A and B. If the buyer is, as they are now) only getting a tax benefit if the house is rented out my choices are…

    A. Buy a house and rent it to someone so as to be on the receiving end of this government sponsored largess.

    B. Buy a house and live in it and pay the extra tax required to fund everyone who selected option A.

    C. Rent a house and pay the extra tax required to fund everyone who selected option A.

    My beef here is that I am not a fncking landlord, I am an Engineer and I want a house for my family to live in, not a fncking investment property.

    My problem is that houses CANNOT be worth the prices I see… and I know that because I AM an Engineer. Builders are building nothing less than a half-million now and they’ve booked their crews to build spec housing at that level for the next year and a half. I know damned well that a perfectly good 4 bedroom house can be built for less than 300K on a developed section that is being sold at a 10%-15% overpriced 150K. Most of the existing housing stock is little better than a carefully stacked pile of firewood. I could build better MYSELF if I could get the fncking council to mind its own business.

    THAT at least is one of the things the US does quite right. The council gives the permit to build, but that is about the last you hear from them. Most of the inspectors and inspections are private and independent The buyer gets an inspector to go over the house, the “council” takes no responsibility for anything but fire-safety and required gas cutoffs and the like.

    There is TOO MUCH MONEY chasing houses… and it isn’t money from people who are trying to live in their own houses… because THEY don’t have that kind of money and THEY don’t get an LAQC type break.

    So where is the “too much money” coming from? I don’t blame the LAQC for all of this, but that part of it comes from the taxes I pay so it hurts me twice. Some simply comes from places far away, where monetary policy is less responsible and hot money can be created. We don’t have any sort of firewall in place to keep the hot money from burning us, and we see plenty of the hot money coming through. Carry-trade.

    My answer is to limit the LAQC *AND* drop the interest rates and provide some better regulation and guarantees of normal investment firms and options. Why should housing be the only thing that a NZ investor perceives as safe? Why did a dozen or more investment firms go belly up and a lot of investors lose everything in the past couple of years?

    You don’t turn down the heat in a market segment by putting more money into it. You have to take the money OUT of it or you have to accept ridiculous levels of inflation… which is what we have.

    The difference between the rental people can pay and the mortgage people can pay tells the story here. Rentals haven’t gone up anywhere near how the prices of houses have gone up. People pay rent out of actual income. People buy investment property HERE with other-peoples-money. The difference is important and it tells you that there is something quite wrong.

    respectfully
    BJ

  10. Kevyn is right that anyone can set up an LACQ if you are earning (not on a benefit) Cost about $400 to set up a company.

    So the “ordinary folks? qualification is everybody that is earning a wage or salary.

    i don’t see the benefit in setting up a business to own your property & rent it back to you when the most you could do is totally offset rent payments against interest to avoid paying any tax on the business.

    so i’m guessing we’ll be left with the conclusion this is only something of benefit to landlords, not first-home-buyers.

    if it were extended to ordinary folk, you would have to acknowledge this was being done as a very deliberate attempt to tweak the market in favour of home ownership as a social goal in its own right, not as a “fair” thing to “eliminate disadvantages” or any other economic principle – just as previous regimes have used tax breaks to try to tweak the market in favour of insurance or whatever as listed by gerrit above.
    there’s no particular economic theory or fairness doctrine about why this private expense or that one, should be treated as a business expense by the individual for tax purposes & not their various other expenses.

    NOR should we be kneecapped by the prices that people are willing to pay to become landlords because THEY get to use OUR tax money to offset THEIR mortgages on houses who’s prices THEY are bidding up because they don’t care about the “loss? as much as about the asset value increase.

    It is speculation that is funded out of my tax dollars,

    i think i’m going to have to repeat again: there is no logical reason why some expenses should be tax exempt for private individuals and not others. you aren’t complaining that the expenses involved in growing food are unfairly making it difficult for householders to grow a veggie garden or bake bread compared with businesses which can claim expenses for tax purposes, so why are you making this argument about property?
    i think i’m going to have to repeat again: house prices are moving rationally upward as population increases – it makes it a sound investment for anyone wanting an appreciating asset. it’s not the other way around. you seem to imply it’s just a bubble, with speculation upon increasing prices supplying the only impetus for prices to keep increasing. your ignoring the most important reason of all for prices to rise.
    if you’re such an angry taxpayer, start campaigning against population increases.
    & don’t give me that brain drain bull. there’s plenty of talented & successful people staying in this country by choice, & plenty of others leaving other countries to come here.

    However that wont drop house pricing and get you into your own property quicker. Only a tax rebate as enjoyed by an LAQC company for first home ownership (as currently on rental property only) will do that.

    no, that won’t stop the constant increase in house prices. any increase in affordability such a tax-regime change will bring is once-off & will be totally swallowed up by just a few years more of population growth & house price growth. even now, this tax change would do nothing for the thousands of people who simply can’t afford the deposit on a house, regardless of what their monthly payments thereafter would be.

  11. BJ,

    “Ordinary folks who are on PAYE wages and actually working full time do not have time and SHOULD NOT BE REQUIRED to screw around with being landlords in order to keep some part of their taxes, own houses or otherwise manage their finances and investments.”

    It is not compulsary (what is the shout about it being required) so whats’ the beef. I had the time and inclination when salaried.

    In fact for about 7% of the rental you can employ an agent to manage your property so be complete hands free (a tax deductable expense).

    You need to face facts that even in a down turn housing prices wont drop significantly. They may be harder to sell, but wont drop that much in price.

    Now if the government was to provide a tax rebate for the interest you are paying for a first morgage it would substantial allow more people to own their own homes. Something you are desiring.

    Totally agree that the interest rates are sending money overseas at a great rate. Something we do not need so why not drop the interest rates down to 6%?

    Would stop speculative money flowing into New Zealand (take money out of the system as you want) as there are better interest rates to be gained elsewhere.

    However that wont drop house pricing and get you into your own property quicker. Only a tax rebate as enjoyed by an LAQC company for first home ownership (as currently on rental property only) will do that.

    Quality of housing is as good or as bad as you want. With double glazing becoming mandatory for all new housing south of the Bombay Hills, dont expect new house prices to drop. If new house prices dont drop, neither will second hand housing.

    Be an interesting exercise to breakdown the cost of a new house into its various components and see what the profit margin is actually. If the land development, materials and labour costs are high I dont expect a housing price drop, no matter what Cullen does.

    He cannot in actual fact do anything about it except build houses at a loss and sell them to you. Do you want your tax payers money spent on that scenario?

    No, the best way is to have a tax rebate system on interest and face the fact that no beneficary will ever own their own property unless like a superannuant you had one before hand.

  12. Gerrit

    Fueling the inflation in house prices by pumping MORE money into it (giving me a mortgage interest tax break) is not the correct answer. It may be the only answer this government can give me, and I have suggested it as a bad but possible alternative to the way the system currently fails to work. The way to get the distortion out is to take money OUT of the system. Pumping yet more money into Australian banks to pay stupid prices for the utter cr@p that constitutes the bulk of the housing stock here does not strike me as a particularly desirable way to cure this particular ill.

    respectfully
    BJ

  13. I guess there are two types of ordinary folk, tax payers and tax recipients No… there is a third… and it would be the taxpayer using the LAQC to buy property.

    Ordinary folks who are on PAYE wages and actually working full time do not have time and SHOULD NOT BE REQUIRED to screw around with being landlords in order to keep some part of their taxes, own houses or otherwise manage their finances and investments.

    NOR should we be required to pay for others to do so

    NOR should we be kneecapped by the prices that people are willing to pay to become landlords because THEY get to use OUR tax money to offset THEIR mortgages on houses who’s prices THEY are bidding up because they don’t care about the “loss” as much as about the asset value increase.

    It is speculation that is funded out of my tax dollars, and I hate to say it but I am one P!55ED off taxpayer today.

    Cullen thinks it is perfectly OK for people in the 60-80K bracket to get whacked 2x as hard as those who are on 200K and upwards. He has no inclination to index brackets against inflation or add brackets. He has no inclination to do anything about house prices, and his pathological resistance to letting the middle class keep anything is part of the reason people leave as soon as they start to succeed in this country, and part of the reason labour gets so much less traction in that income bracket.

    respectfully
    BJ

  14. Andrew,

    Kevyn is right that anyone can set up an LACQ if you are earning (not on a benefit) Cost about $400 to set up a company.

    So the “ordinary folks” qualification is everybody that is earning a wage or salary.

    Benificiaries are excluded, yes. so these “ordinary folk” cannot minimise their tax liabilities (because they are tax recipients not payers).

    No, will never see the day personal income tax disppears. Nor it should as we must all pay our share.

    However LACQ is a mechanism available for the “ordinary folk” (me included as i’m not “extraordinary”) to grow wealth for themselves through property acquisition.

    if you can remember back to 1991 when National bought this mechanism out, it was mainly to get the State out of being a landlord. This has worked very well as the State is no longer the dominant landlord of residential rental property.

    One could argue that it should/should’nt from a politcal left/right point of view. However our taxes would have been much higher had the State buy the rental properties now owned by the “ordinary wage and salary earning folk”.

    Notice that parliament has very little inclination to overturn LACQ’s as most parliamentatian have them for themselves. (look at the asset register for Helen Clark and see what she owns).

    The government has, through its tax policies, a perfect mechanism to encourage first home buyers. Simply allow a tax deduction (you name the amount) for first home buyers against morgage interest payed.

    But again beneficiaries as tax recipients would miss out. so this current labour/green/NZF/UF alliance would rule that as hurting “ordinary folk” and wideing the “gap between rich and poor”.

    I guess there are two types of ordinary folk, tax payers and tax recipients. Tax changes in any form only help (or if taxes go to high, hurt) the payers.

    May well be why this current Labour/Green/NZF/UF government cannot see its way to tax cuts (except for election year to “bribe” voters WFF/Student loans, etc) for the payers. It would have to increase the benefits to recipients to maintain a balance. And that funding has to come from the payers by the way of tax increases.

    Personally think Cullen has this balance way out of kilter by running huge surplusses. And as prices rise for our everyday needs (petrol, milk, etc.) the government GST take increases and this surplus grows.

    So instead of balacing the books better by reducing either personal taxation or GST he has done nothing but collect huge surplusses.

    Sooner or later he has to make a correction but I dont think he has the gumption.

    Either delete GST (my prefered method as it helps the tax recipients as well) or personal tax cuts (which needs an increase to benefits to maintain social balance).

    Of course running the worlds highest interest rates on morgages, thanks to the Reserve Bank, means so much of our money is now flowing to our Australian Banks head offices instead of being invested into growing New Zealand.

    All New Zealand morgage holders could retire a lot of depth if the interest rates were dropped to below 6%.

    Again Cullen is caught in a tangle of his own making. By letting people retain more of their money through lowering taxation and interest rates, he feels a loss of control in that it might (and it is a big unknown) spark inflation. However he has to do something and I dont think he has a notion of what to do.

    The problem has become so big ($9 billion) that he has paralysis.

  15. andrew, the answer to your question “this laqc thing is a benefit extended to landlords & not ordinary folk?” is yes. Because to take advantage of it the property has to earn an income in order to make a loss. You may be able to transfer the family home to a LACQ company if you have a small business. Any small business accountant should be able to tell you if you can or not.

  16. by “ordinary folk” i mean “not landlords” that’s why i added “first-home buyers”. can you confirm you are now saying this laqc thing is a benefit extended to landlords & not ordinary folk?

    You can only claim tax credits on expenses and then only offset these against actual tax liabilities.

    virtually anything can be called an expense as i pointed out, & you have given some additional examples. are you aiming at ultimately abolishing income tax & having only corporate tax/profit tax?

  17. Andrew,

    That is how an LACQ was explained to me by my accountant. Now he could have been wrong and so could I.

    Absolute helps ordinary folks. Lets say you earn $60,000 per annum. Tax rate is $20,000.

    Say you levered your existing property and bought a rental. The expenses occured (including interest payments – but not pricipal) to maintain that property are tax deductable through your LACQ.

    The tax credits gained are offset againt your $20,000 liability as a salary or wage earner in the year claimed.

    If the tax credits are larger then your liabilites they carry over.

    “the government would be left with nothing left to tax if private individuals could claim all the same expenses that businesses can.”

    You can only claim tax credits on expenses and then only offset these against actual tax liabilities.

    So while you can be in tax credit you cant cash them in. It can only be offset against tax liabilites. So you need to get out and earn plus pay tax to get the credits. Meaning the government will never be out of a tax base.

    In the old days we used to fill out ir5’s that included tax deductions such as super payments, life insurance, etc. Now the government has done away with alll your deductions so that as a PAYE payer you do not need to do tax returns.

    Taable deductions used to be issued for things like first farm or fishing vessel ownership as a mechanism to stimulate certain sectors of the economy.

    Why Cullen does not look at some of these tax deductable incentives for the PAYE payer is beyond me.

  18. well now i’m all confused gerrit. the others said lacq was helping landlords at the expense of ordinary folk, first-home buyers. now you are saying it helps the ordinary folk too.
    & the others seemed to be saying that lacq causes all the loss to be accounted in the year it occurs instead of held over to a profit-making year, now you seem to be saying the opposite (this does make more sense as far as doing a favour to home owners). can someone clear this up for me?

    Why should an individual paying PAYE not have the same tax offsets as a business?

    because they’re not a business?
    a business can claim vehicle & travel costs as expenses, they can claim insurance as an expense, energy, even entertainment costs & food under some circumstances. the government would be left with nothing left to tax if private individuals could claim all the same expenses that businesses can.

  19. Andrew,

    A LACQ is geared up to enable wage and salary earners an ability to cover tax losses against their tax liabilities.

    Similar to a business where one does not have to pay tax on negative income but have taxable deductions (R+D costs, setting up expenses, etc.). Where tax credits can be used to offset the tax liabilities created by a positive income business owned by the same shareholders.

    Why should an individual paying PAYE not have the same tax offsets as a business?

    Just because the LACQ is negatively geared to a dwelling is imaterial.

    Now you could argue that these individuals (or more likely family trusts) should not be buying housing stock and claiming he tax losses aginst tax paying income. But in reality is that it is the only pratical way the IRD can “balance to books” when dealing with tax liabilities and tax credits.

    It is one reason why a capital gains tax will not work. The assetts owned by the family trust or the business (in this case housing stock) will never be sold so are never liable to be judged for capital gain.

    I can sell my asset owning business and you would never know if that asset was a dwelling or not.

  20. holding over losses until a profit-making year is what is un-natural & requires special legislation to facilitate it, & is done as a favour reducing the overall tax paid by the owners.
    not the other thing.
    i can see that rent subsidies help people become land-lords rather than first-home-buyers, but on the other hand isn’t there some government assistance to first-home-buyers too?
    and in any case, even if this effect distorts house prices a little upwards, my point is that the number of people affected is small compared to population growth & if this effect were removed tomorrow, in a couple of years the house price situation would be right back where it is now.

    you’ve pointed out that a previous population boom did not create the same house-price pressure that the current one is, but you also point out how the legislative environment was different in those days. obvously expanding urban areas indefinitely is not an infinite solution. ultimately population is driving house prices, & current increases are not ridiculous but rational, if anything, the unusual conditions which prevailed in the previous period you mentioned made the slow house price gain “ridiculous”.
    i could be wrong but i’d guess the immigration rules were different then too, favouring tradesmen perhaps? whereas now favour is given to anyone who transfers the price of a house to nz – so immigration goes directly onto the housing market.

    When you get half way through life you will realise that toys are for boys and there is more fun living your own life than playing on a computer.

    using my computer for a lot of things (not just playing) IS living my own life.

    Money can’t buy happiness, it can only buy fleeting pleasures and a degree of comfort. Once you’ve reached that degree of comfort no amount of money is going to make your life better or worthwhile.

    however long i may live, i hope never to be so “old” that i no longer gain pleasure from the things i mentioned. and you can always have more if you get more money.

    Cullen has done ill by me and by my family in ways that need not have been the case,

    politics is about compromise. to do anything good for you he first has to retain power. there’s always going to be disagreement about how much compromise is needed, but it’s not easy for the one at the top to judge that.

    You really need to get a handle on how the LAQC works here. … If I own my own home I must pay the full finance rate of (what is it now, 8.9% or some such?) … as a landlord that is reduced by 40% …

    well go ahead & explain to me how that works. i did say already i don’t know what the laqc is. (but i imagine my response given earlier in this post will be unaffected).

  21. Andrew

    As usual I chose my words more carefully than my interlocutor … I did not say that I do not care. I said I have no sympathy. Cullen has done ill by me and by my family in ways that need not have been the case, even for a liberal like myself. I don’t have to channel BB here, Cullen has played this for the benefit of bankers and the property “investors” and has no desire whatsoever to see his little bubble deflate. I still will support the Greens and I will side with Labour in the coming election.. at least to the extent of including Bill English in any broadsides in the Letters to the Editor about finance ministers and idiots.

    You really need to get a handle on how the LAQC works here. The state is subsidizing landlords at the expense of taxpayers and it is insulating them from the effects of rising interest rates. If I own my own home I must pay the full finance rate of (what is it now, 8.9% or some such?) … as a landlord that is reduced by 40% … effectively it stands closer to 6% than 9% .

    That isn’t just distortion. The money to do that comes from every taxpayer and it benefits just the ones who happen to be landlords using the LAQC. Which is I think, most of them. Visit any accountants office and discuss it with him.

    The fact is that there are many many contributors to our housing problem. There are SOME we can do something about.
    Nobody is doing anything.

    That isn’t an accident.

    respectfully
    BJ

  22. andrew, LAQC is a critical part of house price inflation because of the way it the state is effectively subsidising the transfer of existing housing stock from home owners to landlords. When this is combined with rent subsidies from the state it allows the prospective landlord pay higher house prices than the prospective first home buyer.

    It is possible to separately register a company with IRD with Loss Attributing Qualifying Company (LACQ) status. If the company makes a tax deductible loss, the loss can be distributed to the shareholders in the same year. The result is, losses which would otherwise be held within the company, awaiting future profits to offset these losses, can be used immediately by the shareholders to reduce their individual personal tax liabilities. An example of the use of an LACQ company is the purchase of a rental property which is heavily mortgaged or a forestry company from its start up. In the early years both situations are likely to have losses. These losses would be able to be distributed year by year to the shareholders- without LACQ status these distributions would not be possible.

    The growth rate in the adult population over the last 20 years has been the same as between 1950 and 1970. House prices during the 50s and 60s did not experience the rediculous price increases that we have seen in the last 20 years. It is this difference that some are blaming on policies aimed at restricting urban sprawl. BJs argument is that it is tax and welfare policies that are actually responsible. However BJ is new to this country and doesn’t know how radically different the state’s involvement in housing was in the 50s & 60s. Back then Working For Families was known by the simpler name Family Benefit. The FB could be capitalised to pay the deposit on a first home, ie a lump sum payment insttead of weekly payments. Once the prospective first home buyer had their deposit they were then eligible for a state first home buyer mortgage fixed at 3%. If they sold the home then they would lose their entitlement to this cheap mortgage rate. That encouraged families to buy their own homes instead of renting and to stay in that first home for as long as possible.

    As prospective home owners weren’t competing with landlords for the same properties the laws of supply and demand dictated that prices would only increase modestly.

    When you get half way through life you will realise that toys are for boys and there is more fun living your own life than playing on a computer. Money can’t buy happiness, it can only buy fleeting pleasures and a degree of comfort. Once you’ve reached that degree of comfort no amount of money is going to make your life better or worthwhile.

  23. Well said Kevyn.
    “Get rid of that dominant nonsensical definition and there is no reason why standard of living and resource consumption should be linked in any way. There is no natural reason why an increase in one should lead to an increase in the other”

    Issues like this should be the primary objectives of the Green Party.

  24. i can’t imagine having anything like this quality of life without my computer, mp3 player, CDs & stereo & some other expensive stuff!

    so the population growth was half the figure given – it’s still an enourmous figure, & it still doesn’t alter the basic truth of what i said:

    put every single one of them on the streets tomorrow & the demand for housing will bounce right back up within a few years. that’s not what’s driving the housing market – it’s the population increase.

  25. andrew, don’t believe everything you hear on the TV news. NZs population was 3.6 mil ten years ago and is 4.1 mil now. The rate of population increase is well below what we had in the 50s and 60s, from both births and immigrants.

    You are confusing standard of living with consumption. A green should know the difference. In fact is vital that greens get everybody to know the difference. As I mentioned in my reply to bj, standard of living should be synonimous with quality of life, but consumerism tends to distort standard of living to mean nothing more than spending power. Get rid of that dominant nonsensical definition and there is no reason why standard of living and resource consumption should be linked in any way. There is no natural reason why an increase in one should lead to an increase in the other.

  26. i heard on the news last night that the population has gone up by 1 million in a decade.
    how many people are reliant on benefits from winz or laqc? i don’t even know what laqc is, but i bet its not a million. like i say, put every single one of them on the streets tomorrow & the demand for housing will bounce right back up within a few years. that’s not what’s driving the housing market – it’s the population increase.
    under the circumstances the prices are not stupid, but quite rational & only to be expected. expect more.
    people who pay rent pay no more than they can afford to pay…. sure, & people who buy houses pay no more than they can afford to pay – even if they have to make some other sacrifices to afford it. property prices may have outstripped rent for now, but that is only to be expected in a market where most everyone realizes that if they don’t bust a gut to buy a house now, they may lose the chance forever.

    I have no sympathy for whatever happens to him or Labour at this point. National are no better and quite possibly worse.

    the two statements are incompatible. given the menace of national you have to care what happens to labour.

    (1980’s level) is also a reasonable standard of living for the world to aspire to as it seems that anything greater triggers profligate waste.

    it’s not just oil running out. we can’t spread that standard of living to the world’s current population without some major new discoveries of previously unknown copper, nickel etc.

  27. samiuela, I suppose it can be seen as planned population control in a sense. But it won’t reduce the global population if that is actually what is needed. Your last paragraph raises the sort of questions that are most worrying. Although the UN population database does show that urban drift increases dramatically with even very modest increases in standards of living it is debatable whether this relative reduction in demand for living space will be enough to take the pressure off the remaining wilderness when combined with growing demand for food. Skilfull microclimate management may offset the loss of productivity that will flow from peak oil but whether thats enough to constrain farmland acreage at current levels or even reduce it is currently a great unknown.

  28. BJ,
    I totally agree that WINZ and the LAQC are supporting the property prices.
    This is probably creating more inflationary pressure than anything else in the economy.

    One of the reasons I said “within 50 years all nations acheive the average 1980s incomes in the west” is because I think that retirement funds are so heavily exposed to the smoke and mirrors debt hedging schemes that western nations are going to find their per capita incomes shrunk back to 1980s, very soon, and for a very long time. This is also a reasonable standard of living for the world to aspire to as it seems that anything greater triggers profligate waste.

    Standard of living is probably not the correct term to be using. Quality of life is harder to measure quantifiable but has more real meaning.

    While economic growth to date has been predicated on cheap oil there is no reason why this needs to remain the dominant paradigm in the future. Whether mankind has the wisdom to see that our current standard of living can be enhanced by reducing energy consumption by half, at no real economic cost, is debatable. The fact that very few can see that a reduction of 90% would greatly improve our western quality of life while enabling the rest of the world to enjoy it too probably means that your and Katie’s pessimism is warranted.

  29. “Most third-world countries are also agrarian societies, mired in a state of misery, reflecting the primitiveness of their economies. What they don’t have, that the Amish in America do, is economic freedom, secure property rights, a well-developed system of trade, legal protections, fairly reliable money and access to the fruits of capitalist society. Yes, Amish do go to the store to purchase some things that make their lives simpler and more pleasant. They rely on cars and busses to transport them long distances. They use telephones when necessary. Trucks bring their milk to market.”
    http://www.mises.org/story/2605

  30. “Watching the Amish riding their horse drawn carriages through Lancaster County, Pennsylvania, you catch a glimpse of how life would have been 150 years ago.
    [snip]
    One thing that I think should be pointed out is that Amish survival in America would not have occurred if not for American society.]

    http://www.windycreek.com/Brian/amish-cultural-dynamics.html

    The Amish are the benchmark when it comes to sustainability.

  31. Kevyn

    The standard of living/wealth rests on the per-capita energy consumption quite heavily. It has other contributors but that is the foundation that is impossible for our current population to stand on if we are all to have all we seem to crave.

    In other words, there ain’t no way to grow out of this mess. Well, there are TWO ways I’ve mentioned before, but neither is being seriously pursued by anyone or is seriously expected to become available in time (right now) to be of use.

    Katie sees what I see. Much the same way. It isn’t going to happen nice. It isn’t going to go away. The problems come from more than just the sub-prime market and its problems. The bankers and their henchmen have put together a whole shadow banking structure that is beyond the reach of the current FDIC and SEC regulations and regulators. They’ve found, much to our chagrin (and the delight of the Republicans) that they have TRILLIONS of dollars of “assets” which aren’t marked to market, they are marked to make-believe, and nobody will touch them and they are trying desperately to conceal them, delay any requirement to sell them, persuade governments to buy them (including the US government which would have to borrow yet MORE money to do so) and bury them under more layers of worthless paper.

    Why do the Republicans love this? Because if the US goes BK in the future and they’re trying their best to do that, they can point at SS and tell us all “we can’t afford that” even though it is paid up through 1944. The problem is that they’ve already spent every dime. The USA will not come out of this century looking ANYTHING like the country it was when it went in…. but that’s not relevant to much of anything here in NZ except Green defence policies and future trade agreements.

    Here in NZ the problem is that WINZ and the LAQC are supportingb the property prices. You have to understand that stupid prices are not accidental here, not with the interest rates where they are. The true price for a house has to be something that relates rationally to the rental income available from it. That’s not true here. People who pay rent pay out of their income. They pay no more than they can afford to pay. People who borrow money from banks are using other people’s money, and with the LAQC they are using taxpayers money to pay the interest. Without a Capital Gains tax or ringfence on the LAQC our tax money is being pumped directly into the coffers of the Aussie banks… this is NOT about “population growth”. If it were it wouldn’t actually happen as it does because the population at large can’t afford the piles of sticks that the real-estate agents are so optimistically flogging off as houses. Without some serious external distortions of the market, the bubble prices, the “stupid” prices, would be impossible.

    Since Cullen tells me (6 times now) that this is not a problem, I have no sympathy for whatever happens to him or Labour at this point. National are no better and quite possibly worse.

    As Kermit says… “It’s not easy, being green… ”

    respectfully
    BJ

  32. i didn’t read “planned population control” into those comments – rather that wealth brings lower population growth automatically.

    it’s population growth which drives up property prices – some respite might be had by allowing cities to sprawl even wider, or allowing charming old residential suburbs to be ripped up & replaced with apartment boxes, but the relentless growth in the population will keep ahead of the land supply.
    it’s not to do with winz. even if every beneficiary in the country went on the street in cardboard boxes, the difference could be made up in only a few years of population growth.

    property remains a good & sensible investment for any who can afford it.

  33. Kevyn,

    I mostly agree with you. I would simply say that your proposal of improving the standard of living for all the world’s population is essentially planned population control. In fact, I believe that it may be the only way of effectively controlling the population (apart from the famine and war scenario).

    However, where I disagree with you is on the current world population. I don’t believe that a human population of six billion is sustainable. We might be able to feed everyone, but there is more than this that needs to be considered.

    I, like many parents, enjoy taking my kids to the zoo. My kids are too young to understand that perhaps half the animals they see in the zoo today will be extinct within their lifetimes. Is this a loss that we want to take?

    I don’t particularly like the argument that we should encourage conservation of animal and plant species, because they may have future economic benefit to human society (an argument you often see when discussing why plants in tropical rain forests should be conserved). It is a powerful argument, and one that should be used, but is everything only of value if it has some economic value? Surely the whales, elephants, in fact any large animal species which are not domesticated, tropical rain forests, coral reefs etc are worth saving, irrespective of whether they provide any economic benefit to humans? Can these species be saved if the human population is over six billion?

  34. samiuela, I think there is an answer to the environmental and economic problems facing the Earth which doesn’t require radical population reduction measures. It may not even require redical population growth reduction measures. It will require radical consumption reduction measures though.

    If the standard of living/population growth rate curves that occurred in the west over the last two centuries are repeated in the rest of the world over the next two centuries then we will definitely exceed even the most optomistic estimate of the Earth’s carrying capacity. However if those curves are compressed so that within 50 years all nations acheive the average 1980s incomes in the west then there is reason for hope. That rate of income growth ensures that birth rates will fall to replacement levels in just two generations rather than the ten generations it took in the west.

    China and India enjoyed higher average standards of living than the west for a thousand years before the industrial revolution. Varying degrees of imperialism, feudalism, nationalism and communism have prevented that for the last 200 years but I don’t think they have obliterated the cultural legacy of the early period of relative wealth. I think that cultural legacy is going to moderate the growth in domestic consumption in those countries. One of the most notable points about the growth in the Indian and Chinese economies is the extent to which it is shifting manufacturing from the west to the east. Essentially a continuation of a process which has already occured with Japan, Taiwan and Korea. Thus much of the economic growth in India and China is a substitute for a lack of real economic growth in the west, a fact hidden by easy credit and increasing reliance on retirement savings for national income.

    We are entering an era when excess consumption in the west will end simply because the ability to pay for it will end. I think the cultural legacy of China and India will learn the lessons of the downside to the consumer economy from the experiences of the west rather than by repeating the same mistakes themselves. It may not appear so on the surface but China and India are actually doing much better socially and environmentally than the western countries at the same point in their industrialisation. Thus the relevant curves for the social and environmental negatives of improved wealth are unlikely to reach the heights acheived by the west. One important memory that still exists in the east is how to build for the climate. As the eastern nations increasingly assert their architectural independence from the west these techniques will lead to dramatically lower building energy use than in the western designed buildings that dominate their cities right now.

    We should also remember that western industrial development was heavily influenced by the demands of their cold climates. That has led to
    a very energy hungry way of doing things that wont be needed in most of the developing world.

    The dire predictions for consumption of water and energy can probably be reduced by 3/4ers based on the fact that the infrastructure needed to provide these services in the developing countries can avoid the wasteful designs built in the west over the last two centuries. New infrastucture can have decentralised energy and separate indoor/outdoor water supplies and improved fixtures for very little extra capital cost wheras the west basicly have to do the whole job over again. But the fact that these sorts of changes can reduce per capita consumption by as much as 3/4s means the environemntal impact wont result in western standards of living producing western resource usage.

    Food is the big problem. But the fact that westerners currently trash one third of the food they buy suggests that the problem may be more one of consumption than production. It’s also worth noting that currently Europe and North America spend as much feeding their pets as Africa does feeding its people. We also shouldn’t assume that western standards of living in africa and the east will result in the same level of meat consumption. That difference dramatically reduces the amount of farmland needed to feed an affluent world. Whether it is a big enough reduction from the assumptions used by the most pesimistic estimates of the Earth’s carrying capacity is the big question.

  35. Bliss, Wash your mouth out 😯

    Seriously, I survived the Muldoon Miracle so I was thinking of the mortgage on the family home and to a lesser extent hire purchase on the furniture and car.

  36. Kevyn said…

    Households can and do respond to higher energy costs by adopting conservation strategies. They don’t have the same option with higher interest rates.

    Yes they do.

    They stop borrowing to consume. Ie. give the credit card a rest.

    peace
    W

  37. JH:

    You write: “I think though that you have to acknowledge that we in the green movement don’t have a (complete) answer although identifying the issues is a start.”

    I don’t think there is an answer to the environmental and economic problems facing the Earth, unless radical population reduction measures are introduced globally.

    We read that the price of food is increasing because of increasing population, demand from bio-fuels etc. Than we read than increasing oil costs affect agricultural costs. On top of that, some parts of the world are likely to suffer more droughts as a result of climate change (some will also be wetter). Has anyone taken all these to their logical conclusion? The market is incapable of sorting things out when food production reaches limits set by nature … starvation will sort it out though. What is scarier is that when people can’t afford food in the market, they don’t just quietly disappear, they are still capable of fighting for it.

    The choice we (humanity) face is this: do we plan our population reduction, or do we leave it to famine and war? If there is still time for the first option, then many possible solutions will open up to solve the other environmental problems facing the Earth.

  38. “Although a recession in the developed world is now more or less inevitable, China, India and some of the oil-producing countries are in a very strong countertrend. So, the current financial crisis is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.”

    The Warehouse The Warehouse…….Globalisation “enriches everyone” but will we have to trade the family “jules”.

  39. 😳 clicked the wrong box by mistake. That should end:
    women went from 350% to 60%. Since oil prices started to reflect the imminent arrival of peak oil traffic growth rates have fallen but not to the same extent we saw when we had both energy and mortgages rising at the same time.

    And for the first time snce 1950 women haven’t increased their total driving twice as quickly as men. The growth rates since 1999 are equivalent to 15 year growth rates of 40% for men and 60% for women. It is possible that women have gained as much driving equality with men as they need or want or can sensibly justify. Which, along with an ageing population, promises much lower traffic growth rates than the MoT is predicting.

  40. Brilliant Katie. I think you did a wonderful job of getting to the heart of the matter.

    Are we already seeing banks nudging up interest rates without amy prompting from the RB?

    Households can and do respond to higher energy costs by adopting conservation strategies. They don’t have the same option with higher interest rates. When we had this same combination of higher energy prices and higher interest rates for most of the seventies and eighties. One consequence was a dramatic reduction in traffic growth from 150% in the 15 years before the first oil shock to 18% in the 15 years after. The gender differences for traffic growth (using crash involvement as a proxy) suggest that the end of 3% mortgages accelarated the end of single income households. Males drivers went from 120% growth in vkt to 1.8%, women went from 350% to

  41. yes jh..

    but don’t you think the ‘identifying’ has gone on for long enough..?

    i think the ‘message’ is ‘out there’..

    eh..?

    time for ‘a bit more’..?

    donchathink..?

    phil(whoar.co.nz)

  42. I think though that you have to acknowledge that we in the green movement don’t have a (complete) answer although identifying the issues is a start.

  43. *deep sigh*

    Loath as I am to lecture, right now I’m going to.

    People, you are all micro-managing these issues, and failing to see the bigger picture.

    The sub-prime mortgage collapse in the USA is threatening their economy, and the presidential elections, way more than their outrageous arms spending in Iraq has done to date.

    But more importantly, it is the involvement of large MNC’s, who operate in our financial markets, too, that is the bigger worry.
    These corporations lose enough equity from price-slumps on under-capitalised property investments, and then we’ll see the same kind of failure of leveraged property portfolios that happened in ’92-’93, when the sharemarket crash finally bottomed out after Marac Finance went under, and property values had gone through the floor as interest rates rose. Much suburban property lost equity to the extent that families were trapped in houses they couldn’t sell without losing significant amounts of money, while they struggled to pay mortgages at 18-20% interest.

    Of course, the investment in property speculation had driven this ridiculous bubble, just as it has in the last 6-8 years, lining the pockets of lawyers, property managers and real estate agents who gain commissions from each transaction & are not waiting for capital gain to see their profit.
    Lots of mom-n-pop investors will get hit this time, ‘cos the baby boomers have been targeted to invest their super funds into tenanted property.

    Which brings me to the next part:
    Those who suggest that the poor should have benefit cuts, will see the middle class landlords go under in no time flat – since the poor (ie: non-asset-owning, RENTERS!) are paying for the investments of the middle classes.

    WINZ are propping up the bad investment choices of the affluent, far more than they are doing anything to help the unemployed/sick/needy children or any other group you might like to pillory as unproductive.
    Those on lower incomes acually keep liquidity moving in a recession, simply because they are not locking up GDP in savings, they are consuming anything up to 100% of their income just to function from week to week.

    Now add in a peak oil siuation that nobody wants to acknowledge is here, and not going away, to a food distribution paradigm that has been predicated around cheap oil or diesel, and it really is time to start digging up the croquet lawn and putting in some veggies for the winter. When not only will the power prices rise, but the distribution costs of sending food from one part of the country (or Internationally…) will be rising as well.

    If we don’t start looking at sustainable transport alternatives (like, taxing SUV’s out of existencs, maybe?) and increasing public transport capacity, there will be people with young families becoming suicidal at the prospect of not being able to afford to cover the costs of working, as the transport, childcare and food costs spiral. (Yes – childcare will become more expensive, because the centres wil be passing on the increases in infrastructure costs that they incur – heating, food, power, transport in the case of those like Barnadoes who run pickupvans, etc….)

    We are rapidly hitting the wall of cognitive dissonance failure here, folks – it’s time to shed the rose-tinted glasses and actually address these issues, which have been building for most of the past 5 years.

    Sayonara, and good luck finding a lifeboat, DAVID F*n FARRAR & Trevor Louden, keep wandering around with your eyes shut and your greedy arms open for more handouts from the far Right to keep conning incredulous people out of money they can’t afford to lose – and see how you get treated when the market “corrects”.
    I don’t wish you to fry in hell, I think you deserve some comeback right here on earth. Losing an election because of the financial chaos that is imminent is the least of your worries.

  44. kahikatea, Your first point is quite right. Switching to other transport modes never occurs to any significant extent in isolation from car transport price shocks. The fastest way for the market to react to rising fuel prices is to cut back on recreational car travel. Proof that this actually happens can be found in the road toll stats disagregated by age and travel mode. The profile for 2000-2004 has only occured once before – in 1974-1978.

    Your second is not supported by history or any emperical study. The market’s response to sustained higher fuel prices has always been to downsize in the medium term, and demand greater fuel economy in each weight class in the longer term. For those reasons investing in alternatives to car transport wont increase the efficiency with which the market can react to rising petrol prices by switching to these more fuel-efficient forms of transport.

    There is one important qualification to the last paragraph. The 70s fuel shocks and subsequent stagflation did result in a remarkable increase of only 2.5% in total kilometres driven by male drivers between 1973 and 1988. But the 30% increase for female drivers resulted in an agregate increase of 16%. The study Why Working Women Drive Alone:
    Implications for Travel Reduction Programs
    identifies some important reasons why working women are more car dependent commuters than men especially in households with young children.
    http://www.uctc.net/papers/274.pdf

  45. Joy, Early on Roman suggested inflation could be kept in check by “perhaps we should reduce the tax on petrol.” There are three taxes on petrol – GST, an excise duty equivalent to RUC’s levied on behalf of the Main Highways Board and it’s successors, and an excise duty introduced in 1975 to help fund the government’s deficit.

    I assume if Roman was referring to GST he would have said so. Since the original excise duty and RUCs pay for roads and have always been referred to as user pays. As these are already inadequate I think it would be seriously short sighted to reduce them in a vain attempt to control inflation.

    The second excise duty is a different matter. The government hasn’t been running a deficit for quite a few years now so a reduction in this tax wouldn’t do any harm. But since it’s not levied on deisel it’s removal would not help reduce the freight transport component of the CPI.

    Since my comment was made in relation to freight transport costs it is heavy vehicle RUCs that are most relevant. Most of a heavy vehicle’s RUCs are for the damage it’s weight is doing to the road. That makes a reduction in heavy vehicle RUCs irresponsible especially with the huge increase in the the construction price index since 1999.

  46. Kevyn Says:
    January 25th, 2008 at 1:57 am

    > The traffic reduction effects of these types of investments in isolation has been proved to be nearly zero. By contrast doubling the price of petrol has been proved to trigger behavioural adjustments that negate the price increase within a few years. All of the things you mentioned are adopted as petrol price coping strategies, along with vehicle downsizing.

    Sure, but they’re not going to happen in isolation. The price of petrol is rising anyway, and investing in alternatives to car transport will increase the efficiency with which the market can react to rising petrol prices by switching to more fuel-efficient forms of transport.

  47. Kevyn,

    Why do you say that diesel is not taxed? That is what road user charges are for, plus we pay the usual ACC levies, regional tax, gst.

  48. why should our economy follow the usa’s that closely? they’re not our biggest trade partner.

    Who were MPs in that government? Where are they now?

    who – lange, douglas, prebble, caygill, bassett etc?
    i imagine the reason this government has moved only sluggishly to slow the tide of freemarket reform is that they are scared witless of the business lobby, not that they are idealogically committed to it as their former colleagues were.
    don’t tell me that fear is irrational until labour has comfortably won the next election o.k.

    Freeloader on hammock:

    lol

  49. My esteemable advisor says our Economy will follow the US like a Tic on a Dogs back. We’re simply not able to hold back any global fiscal tide with a teaspoon and a paper cup – not a big enough economy….
    Thing about NZ is, we can feed and shelter 4 million from our own resources pretty easily – anyway the Markets are all on the bounce all the time – the one peice of investment advice to remember is that ‘the Market will fluctuate’

  50. But wouldn’t reducing dependency on oil reduce the effect of oil-induced inflation? i.e. from those other measures?

  51. Well I guess it doesn’t then Kevyn, I stand corrected, presumably. Still trying to get my head around all this stuff. “Nearly zero” though?! Sh*t! So doubling the price (either through supply/demand or taxes) hurts the poorest and even the middle class the most…driving them to these other options…which haven’t been invested in adequately…………..so presumably we use the taxes from that to invest in these things anyway though, without mitigating inflation…?

    Good list of transport papers, but it’s a very big list…

    Interesting. Wouldn’t imagine there’d be that much of a time delay with rail though? Maybe getting stuff from the station to supermarket though…

  52. big bro Says:
    “It annoys me when I see people suggesting that the so called poor are the only ones who need to be protected by a recession, given that most of these people live on tax payer hand outs they should be the first to feel the pain if there is to be a recession.”

    Note picture on cover of Special 50th Issue: Freeloader on hammock:
    http://www.landlords.co.nz/

    “What the rising asset values effectively create is a corresponding rise in claims on the economy at the expense of those who do not own such assets. But this is wealth redistribution, not wealth creation.”
    http://www.safehaven.com/showarticle.cfm?id=784

    Paul Volcker himself once said, “Sometimes I think it’s the job of each Fed chairman to try to prove Richebächer wrong.”
    http://www.richebacher.com/

  53. StephenR , How does channelling petrol taxes from building more motorways into “better and safer public transport, cycling and walking. They include investing in rail to move freight off roads and onto rail.? mitigate oil’s inflationary effect?

    The traffic reduction effects of these types of investments in isolation has been proved to be nearly zero. By contrast doubling the price of petrol has been proved to trigger behavioural adjustments that negate the price increase within a few years. All of the things you mentioned are adopted as petrol price coping strategies, along with vehicle downsizing.

    http://www.uctc.net/papers/papersuctc.shtml

    Doubling the price of deisel on the other hand impacts heavily on all freight modes. Since deisel isn’t taxed there is no way to reduce the inflationary effect by a simple tax reduction. Transfering freight to a more fuel efficient mode will help stem inflation if their is no time penalty attached to the switch. Switching to rail or sea freight incurs a significant time penalty within a just in time distribution system and the consequent need for retailers to hold greater inventory and provide greater inventory space at premium mall/CBD rentals can be just as inflationary as deisel price increases.

  54. I don’t think a Labour or National government will make much difference to the economy. Sure, they have different policies, but the differences tend to be in the icing around the edge of the cake.

    With all this talk of National = Right = Wrong, Labour = Left = Right, it pays to think back over the last 24 years. Which government started the deregulation of the economy, privatisation of state assets etc? Which government arguably did the most to introduce liberal free market policies to New Zealand. Who were MPs in that government? Where are they now?

  55. I suspect John Key will announce his policies in more detail closer to the election when he is sure Labour wont steal his ideas. Afterall, whats the point of saying them now when he can do nothing to implement them….

    well what are you saying? that the point of policies is that they are a ruse to get into power… and not something key would like to advocate for the good of the nation?

  56. The faults lay at the feet of the fools who bailed them out, anything that needs subsidizing should be allowed to die.

    The only hollow people are the ones who refuse to consider another idea simply because they do not like the politics of those who suggest it.

    We really need to get over this juvenile LEFT = Right & RIGHT = Wrong rubbish.

  57. Yeah, never mind about having to bail out bankrupt tranzrail, airnz, forcibly having to regulate the telecom monopoly, the huge fortunes made by those who bought public assets at fire sale prices, the 10% of GDP going straight offshore in profits every year, the extreme power of the banking cartels, etc.

    I just don’t see the motivation for privatising successful, efficient, SOEs except to make a buck out of it for someone…

    It’s an ideological stance driven only by the hollow men who gain materially from it, and parroted by those sucked in by the propaganda machine.

  58. Yeah, the result of that has been an extremely strong economy for most of the 90’s and all of the 00’s so far.
    So strong has the economy been that we can afford to pay billions in DPB and dole money to people who do not want to work.

  59. Still curious about the administrator question, but anyway Roman I find it pretty hard to see National as ‘centre left’ with all the tax cuts and talk of ‘markets’ (e.g. that little fiasco with GPs). I can’t think how National would be that unless you happen to be a member of the Libz, as they will of course still take a lot of our money and decide how to spend it.

    If you agree with the inflationary effect of the price of oil, surely the tax on petrol wouldn’t be reduced – it would be channelled from building more motorways into avenues to mitigate oil’s inflationary effect, like Russell said: “better and safer public transport, cycling and walking. They include investing in rail to move freight off roads and onto rail.” And sea, presumably, as they were talking about that a few months back – theres a Bill I believe.

    Oh for a capital gains tax…and an economics degree but oh well.

    The sanctuary is very much IN Wellington, and I thought the government had sorta reconfigured our Navy for almost that purpose – protecting the fish stocks!

    BB- they DID release policy about GP’s fees (“wait, no, we won’t”) and partial privatization (“oooh…wait, no, we won’t) (maybe not that bad with a capital gains tax). Hopefully they learned from that

  60. “Ahem, one of the major problems we have in NZ is too much Government spending is not resulting in increased productivity.”

    It is not the job of the government to improve productivity, per se. I agree that gov spending is kind of high for the top of an economic cycle and might be contributing to inflation. But the govt can realistically only create the conditions/policies which productivity improves.

    Productivity improvements are the domain of the private sector- but right now it’s far cheaper & easier to just hire more people that invest in capital; of course that’s a function of being a nation of SMEs as well…

    If NZ business in aggregate can be encouraged to invest in capital en masse rather than BBB (Boat, Bach & BMW) that would certainly help- hopefully that’s what the new R&D regs are for…

  61. “The only way to deal with a recession is to cut taxes and tighten expenditure.”

    That didn’t work out so well in the early 1990s. After the new right slashed and burned their way to 12% unemployment, they forgot about the human cost of all the kids growing up without employed parents in “once were warriors” conditions… Is it just co-incidence those kids are now the violent teenage psychopaths who you read about daily in the news?

    It would probably have been cheaper to have make-work jobs building motorways and rails; at least we would have something to show for the 1990s apart from social disintegration and economic stagnation.

    “The worst thing that Key could do is release policy” The policies have not been designed by the PR teams yet, no doubt. Let me guess, it will have something to do about “cutting bureaucratic wastage and Maori privilege, so mainstream NZers can have tax cuts”? Heh.

  62. Wake up people!

    The worst thing that Key could do is release policy, hell if he did not release any policy at all prior to the election he will still win by miles.
    All he has to do to win is remind everybody that he is NOT Helen Clark.

  63. To lend time to the public to scrutinse them? I’m sure there are plenty of ‘right-wing’ ideas he could release that wouldn’t be nabbed, but thats their prerogative. About 9-10 months out, we could FORGET some of the policies too.

    This ‘administrator’/manager tag has always been a vague one…receptionists? Senior doctors who have to do admin as well? I’m not saying we aren’t understaffed in areas though.

  64. Ahem, one of the major problems we have in NZ is too much Government spending is not resulting in increased productivity. How many PR people are there now?
    1200 administrators for 1000 beds in our hospitals and little increase in output.
    Joy- I suspect John Key will announce his policies in more detail closer to the election when he is sure Labour wont steal his ideas. Afterall, whats the point of saying them now when he can do nothing to implement them….

  65. I believe many voters are keen to see/hear what National would do differently or better (?) on any major topic of the day. We have watched and experienced Labour policy for a few years now. John Key says they (National) can do things much better. How? In what way?

    Yes, I am a Green voter, but pragmatic too, and I recognise that either National or Labour will be holding the coalition talks once the votes are counted.

    The devil is usually in the detail.

  66. Well I would defend Labour’s right not to release a raft of policies JUST yet, seeing as they’re sort of governing the country as well as putting out policies. And National is very high profile, so naturally we’re all keen to hear from them as soon as possible. ACT on the other hand…not so high profile.

    I’m not sure anyone OFFICIAL has actually been jumping up and down though?

  67. That’s exactly my point Ivan…

    The greens and labour are the first ones to jump up and down when national and act talk about ideas but don’t have any policy ready to publicy release.

    As i said… you can’t have it both ways.

  68. petermcc said: no policy!!!! secret agenda!!!! or are we a bit far out from the election and it’s still being worked on?

    Peter, Green Policy is released when the Green Caucus and Campaign Committee decide it is politically opportune, not just because someone asks for it.

    There are currently 16 new policy documents and reviews of existing policy completed and awaiting public release, and, yes, there are a few areas still being worked on. But no secret agendas!

    And, recalling a previous discussion with Phil U about a year ago re the Greens Defence and Foreign Affairs policies; these are on target for completion in April – exactly the timeframe I predicted back then. Not that they’ll necessarily be released in April though – that’s not my call.

    Ivan Sowry
    Green Party Policy Co-convenor

  69. bliss..it is not a credit/liquidity crisis..

    it is a global debt crisis..

    built on bubbles..

    and out of whack consumer debt..

    (btw..i’d go for a ‘first payment in 2011’ deal..

    as in ‘clouds with silver linings’..

    they’ll likely be bothered with other /more basic priorities then..

    to even bother asking for it..

    (that’s called ‘playing the disaster futures market’..)

    and of course..

    let’s not forget the salient fact that the sub-prime thread f this unravelling..

    will not peak untill the last quarter of this year..

    which is when a whole heap of them will ‘fold’..

    and ‘owners’ will walk away..

    the good news is..

    that major dislocations of this ilk will force changes that are needed..

    all the old ‘certainties’ are/will be gone..

    then of course..there is the ‘2 metre sea rise’ predictions..eh..?

    whoar..!

    this is a time when anyone who says they are an optimist about our near/longterm futures..

    is irredeemably branding themselves as a feckin’ idjit’..

    eh..?

    and hey..!

    that ‘policy’ had better be pretty good..eh..?

    phil(whoar.co.nz)

  70. Frog, your definition of traditional conservative is probably seventy years out of date, I doubt you’d find many (any?) economists or politicians advocating contractionary fiscal policy in response to recession (unless of course government deficit/debt is the cause of the recession in the first place). It would seem that there is a fairly solid consensus in NZ politics (in fact in most developed countries) for allowing an independent central bank to use monetary policy as a first line of defense against an economic slowdown.

    If the economic situation became so dire that additional fiscal stimulus seemed prudent, you’ve only got two main options: start sending out cheques to people or increase government spending projects (classically, build more roads/hospitals/schools). The two big problems with the latter option is that the spending has a tendency to be on white elephants, and the stimulus effect is not particularly timely compared to posting out the money.

    Although targeting the fiscal stimulus to the unemployed in a recession is a sound principle, in practice some form of tax cut/rebate would probably be required to get the stimulus out as quickly as possible. Sending $1000 to everyone on the unemployment benefit would only cost $30m, whereas a target stimulus of 1% of GDP (the US figure) would be in $1.5bn range.

    The second principle would be to take the opportunity to restructure our economy

    Hmm, using a crisis to restructure the economy, our you saying the green party espouses Klein’s “shock doctrine”? Realistically, recessions tend to be short and restructuring measures aren’t going to make any contribution within an appropriate time-frame.

  71. Big Boy said

    The only way to deal with a recession is to cut taxes and tighten expenditure.
    We have a sickening level of waste in government and social services, the first thing we must do is fix that problem.

    That is economically illiterate. That was one of the many things that made the 1930s depression so much worse than any after Keynes.

    In recessions (ideally before recessions) the thing to do is increase liquidity. Perhaps cut taxes, but unless you cut from the bottom as we suggest you give most money to the richest who spend less of it in the local economy. It is the lower income brackets who increase spending, hence liquidity, when they get increases in income.

    The most common ways of increasing liquidity are a) monetary by lowering interest rates and b) increasing government spending, usually on infrastructure.

    Increasing liquidity is of course inflationary. But decessions are deflationary in nature so that balances out.

    peace
    W

  72. good post frog..!

    ( i mean..with the qualification you have failed to carry the warnings of this of the last two years..

    extensively recorded/reported at whoar..and elsewhere..

    so you are doing the equivalent of sticking your head out the window when it’s raining..

    and saying..”it’s wet!..)

    and ‘solutions’..?

    doyareckon green policies (this time) will contain ‘solutions’..?

    tho’ i expect the greens are like cullen..

    who today admitted he dosen’t know what will happen..

    but hey..!

    ‘happen’ it will..!

    eh..?

    phil(whoar.co nz)

  73. The only way to deal with a recession is to cut taxes and tighten expenditure.
    We have a sickening level of waste in government and social services, the first thing we must do is fix that problem.

    It annoys me when I see people suggesting that the so called poor are the only ones who need to be protected by a recession, given that most of these people live on tax payer hand outs they should be the first to feel the pain if there is to be a recession.

    When things are tight it should not fall on those who have done the prudent thing and planned for tough time to carry those who have not bothered to protect themselves or their families.

    Anybody who proposes that the rest of us carry the poor are simply communists, it would not surprise me to see Russel and Sue B pushing this barrow.

Comments are closed.