Gordon Campbell debunks right wing welfare myths

Gordon Campbell has a great piece in this month’s Werewolf debunking some of the myths about welfare trotted out by the beneficiary bashers.

Here are a few of the highlights:

Anyone who wants to get off welfare can get a job

No, they can’t. In the last two months of 2010, the number of people receiving the dole rose by 4,536 to 67,084, and rose again in January to 68, 087. The number of people out of work stands at 158,000. … As one would expect, the dole numbers have risen steeply since the recession began. In the mid 2000s, dole numbers had shrunk to around 17,000 – one quarter of the current number, and solid proof that the problem is not a lack of motivation and/or of strong incentives.

It is a very odd situation. The same politicians who have been unable to manage an economy so that it employs people, are now blaming people for not finding jobs that do not exist.

People on welfare commit a lot of benefit fraud, at the expense of hard-working people

The evidence for the existence of widespread benefit fraud is paltry to non-existent – despite the fact that a special fraud intelligence unit was set up in the Social Welfare department in 2007 to detect it. Last year, the department checked 29 million records, and found the benefit fraud rate (as a proportion of the total benefits paid) was a miniscule 0.10 per cent. A declining number of prosecutions – from 937 in 2009 to 789 last year – resulted.

Moreover, other forms of unacceptable behaviour leave benefit fraud far behind in the dust without attracting the same negative stereotypes. The major foreign owned banks for instance finally agreed in late 2009 – and only after being pursued at great expense through the courts by the IRD – to cough up $2.2 billion of what they owed in unpaid taxes. Meaning : the settlement figure this case alone was about 140 times greater than the total amount lost in benefit fraud last year…

Putting a time limit on how long people can receive welfare is a good idea

No it isn’t – though it certainly sounds like a tough, no nonsense policy doesn’t it? …

What the GAO report indicates is that stringent welfare eligibility conditions deter people from seeking assistance during the recession – and have especially discouraged the most vulnerable people, who are suffering from disabilities. For example :

..”Other families may have found it difficult to apply for or continue to participate in the program, especially those with poor mental or physical health or other characteristics that make employment difficult... Research also suggests that, in response to lifetime limits on the amount of time a family can receive cash assistance, eligible families may hold off on applying for cash assistance and “bank” their time, a practice that could contribute to the decline in families’ use of cash assistance.

The pattern is undeniable. Tighter work conditions, low benefit payments and five year term limits not only combine to reduce the numbers of people eligible for assistance – they also deter the people who are eligible from seeking help. As the GAO report continues :

In total, about 420,000 fewer families were eligible for cash assistance in 2005 than were eligible in 1995, according to HHS data. However, most of the decline in the cash assistance caseload—about 87 percent—resulted from fewer eligible families participating in the program. In 1995, about 84 percent of eligible families participated, but over the decade, participation in cash assistance fell dramatically, to about 40 percent of eligible families in 2005.

Term limits deter people in need, and systematically cheat people of their entitlements. Why would we want to import such a scheme here when we already know the consequences in its country of origin?

People who go off on the dole go onto sickness and invalids benefits. We have to crack down on them, too.

On the international evidence, New Zealand does not have a problem in this respect. Late last year, the OECD released comparative figures which showed that one of the main reasons for the recent rise in people receiving disability benefit is that New Zealand has been from a very low base – mainly thanks to the pre-Rogernomics policies of full employment and prior methods of institutional care. True, in the wake of the initial carnage wreaked by Rogernomics in the 1980s, unemployment and disability benefits both rose sharply – and since then, unemployment has fallen but sickness and disability benefits keep on increasing.

Even so – and this is the relevant point – the numbers of working age people who receive sickness and disability benefits in New Zealand is still well below the OCED average. In 2008, this ratio was 3.8% in New Zealand, as compared to the 5.7% OECD average. Moreover, the share of people on disability benefits is among the lowest in the OECD for older workers aged 50-64, but fifth highest for young adults aged between 20-34.

Most of the people on welfare are unmarried mothers – many of them teenagers – who have extra children so that they can get more money

This is a hoary old myth that combines the resentment of beneficiaries in general, with prurient resentment of the sexy young having too much sex. In fact, the US and New Zealand evidence is that young people are having less sex, later than their parents’ generation.

In fact, only 3.1 % of those on the DPB are under 20 years of age – and that figure has barely flickered since 2005, when the figure was 2.9 %. Put another way, 97% of the people on the DPB are NOT the ‘very young women’ of Key’s lurid imagination. There are in fact, significantly more people on the DPB over 55 years of age (5.6%) than there are ‘very young women’ receiving this benefit.

The vast bulk of DPB recipients (nearly 75%) are what you would expect : they are aged between 25 and 54. Some 61% of them are caring for children six years or under – a figure that, again, has barely changed since 2005. Nearly half are caring for two or more dependent children.

Lots of people are on welfare for years and years, and then their children and grandchildren become welfare dependent.

This myth is based on stereotypes about the chronically shiftless and teemingly fertile poor. Lets stick with the DPB for a moment. Since the DPB involves the care of children who are dependent at least until they are 18, you’d think it would reflect lifetime dependency very strongly. Yet instead, over two thirds of DPB recipients (67.7%) are on the DPB for less than four years. More than a quarter of them (26%) are on it for less than a year, even during the recession. If this is a lifestyle choice, it is hardly a fashionable one.

Looking across all forms of benefits, 61.4 % of recipients are benefit dependent for four years or less. Only 14.3 % are on benefits for more than ten years – and since those figures include people with chronic physical and mental disabilities, the ratio of those staying on benefits because it is a “lifetime, lifestyle choice’ is lower again.

Making unemployment insurance compulsory would be a good idea.

It would certainly be a bonanza for insurance companies. It might also seem like a good idea to Finance Minister Bill English – who could not only shift much of the cost of welfare provision onto employers and beneficiaries, but could count the gigantic fund this scheme would quickly generate on the positive side of the nation’s accounts, and thus lower the cost of borrowing. That’s what has happened in Canada, where the federal government has been able to count the unemployment insurance scheme surplus on its books.

The Canadian experience with UI has been – surprise , surprise – that access hurdles rise, and payments don’t keep step with rising cost of living. In Massachusetts, the UI scheme has also exploded in rising costs to employers during the recession :

That’s the sticking point, politically speaking. UI amounts to a new tax on firms and their employees – and employers would make the loudest noises about it. The provision of welfare by private operators and insurance companies also opens up fresh avenues for fraud and abuse.

Campbell’s full article is well worth a read, especially for those who have grown up believing some of the welfare myths he debunks.

But what’s the bet the Paula Bennett’s Welfare Working Group, which is due to release its final report next week, will continue to rely on the same discredited myths to justify recommending another round of punitive beneficiary bashing?

And what of the motives of the people like Paula Bennett who deliberately perpetrate those myths, appealing to the worst aspects of human nature to try to gain public support for transferring wealth from the poor to the already wealthy?

97 thoughts on “Gordon Campbell debunks right wing welfare myths

  1. Clearly the numbers quoted are stuffed up. If those on the unemployment bnenefit were quarter in the mid 2000s compared to now (when the unemployment rate was 3-4%) then the current rate would be 12-15%.

    But it is only 6-7% – lower than the OECD average.

    And Campbell says there were 17,000 on the UB in the mid 2000s, yet MSD figures for those on unemployment benefits in 2004 were 76,765 and 57,839 for 2005. Even longer term unemployed (over 6 months) was 45,000 in 2004.

    If he gives totally false information from the very start, then he debunks nothing.

    Frog – if you want to promote something like this, can you not find an article that can at least can get the most basic facts right?

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  2. photonz1, you are confusing numbers on the unemployment benefit with numbers of unemployed. Not all unemployed people go on the benefit. A few years ago when unemployment was about 4%, the number on the benefit was about 0.7% from memory – ie most people were unemployed for too short a period to bother collecting, what with all the hassles involved. Today the numbers seem to be about 7% and 3% respectively so you can see how the numbers on the benefit could have quadrupled.

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  3. A to K is my dismay. Perhaps they can feed the poor this:

    http://www.rawstory.com/rs/2011/02/08/report-china-fake-rice-plastic/

    The “rice” is made by mixing potatoes, sweet potatoes and plastic. The potatoes are first formed into the shape of rice grains. Industrial synthetic resins are then added to the mix. The rice reportedly stays hard even after being cooked.

    As if the fake eggs and poisonous milk powder weren’t bad enough.

    Unemployment numbers are steadily growing under national, how many campaign promises broken now? Could you please link to where you got those statistics from photonz1?

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  4. @ photoNZ. He is saying that there were a quarter as many people on the dole (17,000) than there are now (67,000) which sounds fairly correct to me.

    Also, I am no expert on benefits and I can’t be bothered to check but maybe the disparity between his 17,000 and your 40,000 is due to the fact that he’s only counting dole payments but your figures include sickness beneficiaries as well?

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  5. Lucy – no – that’s not sickness or invalids benefits.

    2004
    UB – 68,755
    UB for people on training schemes 4,469
    UB including hardship to studends and youth benfit 348
    Other unemployment related benefits 3,193
    Total 76,765 for 2004

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  6. Robert says “photonz1, you are confusing numbers on the unemployment benefit with numbers of unemployed. Not all unemployed people go on the benefit.”

    No – I’m using numbers of people actually being paid an unemployment benefit as of mid 2004 (and earlier mid 2005)

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  7. @photonz1 10:13 AM

    You are seizing on a minor inaccuracy and blowing it out of all proportion. Where Gordon Campbell may have been slightly inaccurate was in his reference to “the mid-2000s” – it was actually somewhat later. In June 2008, just before the impact of the recession struck, unemployment beneficiary numbers dropped to 17,710. From September 2008 they began to increase again.

    Which actually makes Campbell’s argument even more valid than his “mid-2000s” reference would.

    @Robert 10:31 AM

    Another reason for the discrepancy is because people who are unemployed cannot get the unemployment benefit if they have a partner who is earning sufficient to fully abate it (which isn’t a lot). So they don’t appear in the UB figures until their partner loses their job too.

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  8. @photonz1,

    Fair enough call about getting the basics right.

    I’m pretty sure Gordon was reading the stats on Unemployment Benefits and Unemployment Benefits-Hardship paid to unemployed people (as opposed to people in training, students or those receiving the Independent Youth Benefit).

    In 2008 (a wee bit off ‘mid-2000s’ to be sure) the number was 17,710.

    You can find this in Table 3.2 here: https://www.msd.govt.nz/about-msd-and-our-work/publications-resources/statistics/statistical-report/statistical-report-2008/main-benefits/unemployment.html#clients

    BUT, this is a little nit-picky – the principle of what Gordon has proposed remains true IMO.

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  9. Photonz1

    This is worth a read if you are really interested in the subject:

    http://www.stats.govt.nz/browse_for_stats/work_income_and_spending/employment_and_unemployment/a-guide-to-unemployment-stats.aspx

    The statistics you’re using are old, mainly pre 2008. I’m pretty sure Gordon was writing about today’s figures. Here’s a link that puts unemployment at 6.8% with long term unemployed up 9.6% in Dec 2010. Fig 2 is most telling:

    http://www.dol.govt.nz/lmr/lmr-hlfs.asp

    You’re correct in that unemployment fell leading up to the last elections, but has steadily climbed under Nationals policies. Unemployment has continued to increase despite predictions of an improving job market.

    But it is only 6-7% – lower than the OECD average.

    We’re only 1.7% below the OECD average (Unemployment Dec 2010) which is not a great indicator of the problem. Considering it’s not just the numbers that count, but the detrimental social effects unemployment causes.

    I’m not sure why you’re fudging the data again or even trying to defend Nationals complete fail!

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  10. Unemployment rate drops to 3.4 percent:

    http://www.scoop.co.nz/stories/BU0802/S00088.htm

    Over the December 2007 quarter the unemployment rate dropped 0.1 percentage points to 3.4 percent. The female unemployment rate decreased to 3.5 percent, which is the lowest rate recorded in the 20-year history of the survey, while the male unemployment rate increased to 3.4 percent. The number of people unemployed decreased by 2,000 (2.8 percent) driven by a drop in female unemployment, while male unemployment increased.

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  11. People on welfare commit a lot of benefit fraud, at the expense of hard-working people

    I think the media must carry some responsibility for that myth. Some idiot rips off about $28,000 in unemployment benefit by going overseas and omitting to tell Work and Income, and it gets saturation coverage.

    Yet just last week the former accountant at the business my wife works for was jailed for 2 years and 8 months for ripping off $315,000 from the company by way of a premeditated and elaborate system of creating bogus invoices, and not one mention in the media.

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  12. …. not to mention the hundreds of millions of $$ in tax the banks avoided paying. Yet we don’t see National cracking down on that, do we?

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  13. Todd – I followed your links, and to balance things up with some of the positive points –

    “•Full-time employment increased by 0.3% (or 5,000 people) over the quarter.

    •The female unemployment rate dropped from 7.2% to 7.0% over the quarter.

    •Youth employment rose by 5,400 over the year which helped their unemployment rate fall from 18.4% to 16.8%.

    •Compared to a year ago, employment increased strongly in manufacturing (up 17,400), retail trade & accommodation (up 8,600), health care & social assistance (up 7,600), arts, recreation & other services (up 6,000) and utilities (up 5,300).

    •Employment of older workers (aged 55 years and over) rose to 450,000, up 5.3% (or 22,800 people) from a year ago.

    •Compared to a year ago, the unemployment rate fell strongly in the lower half of the North Island with Gisborne/Hawke’s Bay (7.1% down from 8.6%), Taranaki (5.1% down from 6.0%), Manawatu-Wanganui (6.6% down from 8.1%) and Wellington (5.4% down from 6.3%) all experiencing a decline.

    •The ‘Pacific Peoples only’ unemployment rate fell from 14.0% in the December 2009 quarter to 13.5% in the December 2010 quarter.”

    In case you hadn’t noticed, the whole world including NZ went into recesion at the time of the last election. To blame the current govt for this and the resulting increase in unemployment is ludicrous.

    And the main reason we went into a recession, and also the main reason ver very low unemployment inmmediately before it, was that for several years we were all spending $110-$115 for every $100 we earned.

    So for years we spent 10-15% more than we earned, every year. And surprise surprise, everything boomed – housing, businesses, jobs, retail sales.

    But it wasn’t real. It was a bubble.

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  14. Anyone who wants to get off welfare can get a job

    That is a myth at the moment, but back prior to the recession when there were massive worker shortages, it was certainly a possibility.

    While some of the myths can be debunked, there is still the problem that there is no push to get people who are unemployed into either work or training – and you don’t need subsidies to do that, you just need the right amount of stick (of course acknowledging that right now it is somewhat more difficult to get into work).

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  15. @john-ston 2:42 PM

    …there is still the problem that there is no push to get people who are unemployed into either work or training – and you don’t need subsidies to do that, you just need the right amount of stick

    Actually, you do need subsidies to do that. I agree that a big part of the problem during better economic times is the mis-match between skills and vacancies, but you can’t expect people on the dole to have any money left over to pay for their own retraining, however much stick you may apply, so a subisdy is required for that purpose.

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  16. I am a bit vague, but I was reading something recently about a group of economists who factored in the costs of employers trying to fill vacancies and the costs of employees trying to find vacancies into the usual market models for labour markets. When these costs were included in the models the outcome was that a moderate level of unemployment was inevitable. As I recall, the costs created a inevitable lag time between employers needs and employees ability to meet them. Can someone else explain this better?

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  17. Aha, here is the article I was thinking of, from Science:

    http://www.sciencemag.org/content/330/6002/303.full

    “High unemployment is now plaguing many nations’ economies, but even in the best of times, about one out of every 25 workers will be out of a job. This year’s winners of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel laid out the theory that explains why full employment is impossible.”

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  18. photonz – why not check the figures for 2006 – if you count 2004 as mid decade, then check the figures for 2006. Unemployment fell from 1999 right through to late 2006. And I suspect you know that and are being a bit pedantic here to raise a question about the wider credibility of someone on the left daring to better inform people about the issue.

    That said – I recall the dole figures falling to 30,000, but I don’t recall them going as far as below 20,000.

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  19. Oh just saw toad’s post – so they did go to 1/4 of the current figure but in early 2008, rather than the mid-decade.

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  20. National leader John Key said a government formed by him would have “an unrelenting focus” on getting beneficiaries into work.

    Pfft! From 3.5% unemployment in Dec 2007 to almost double that, 6.8% unemployment now. National has had its chance, and made things worse.

    http://www.odt.co.nz/news/national/146426/unemployment-climbs-68

    You’re being very selective with you’re cutting and pasting there photonz1. Just like your selective use of information to try and convince use old data is indicative of the current figures. The reality is that Unemployment figures are getting worse and have done since National got in. Better for a marginal amount while worse for lots more.

    There has been very few downward movements against the upward trend. The Natz policies have not helped in the slightest to stem job loses, making any effects of a recession even worse. And now we can thank them for a double dip recession as well. I wonder how many people the National Government laid off themselves, and are preparing to lay off in the coming months?

    And all this despite harsh new criteria to keep people off benefits. The trend is for it to continue to climb above the critical 7%.

    If people can’t survive on minimum wage as my previous calculations have shown, how are the unemployed surviving?

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  21. A wider issue is of course is the hardship falling upon those not able to qualify for a dole payment – they may have working partners who earn above the amount allowable for their partner to make any claim for support while unemployed. Where they have children the cost is felt in WFF – this hides the full cost of unemployment. Where they do not have children there is a burden of unemployment falling on them that they have to cope with without any or little support. Such factors as these explain why so many feel worse off and explain why even two income couples will not spend while the recession continues – they are one job loss away from the same struggle. This is part of the multiplier impact that occurs with any recession – reducing insecurity is one way to restore confidence and that means a government as focused on job creation as cost savings.

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  22. When were the massive worker shortages john-ston and what exactly is massive?

    Was the amount higher or lower than the number of New Zealanders crossing the Tasman for higher paid jobs?

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  23. @SPC 4:23 PM

    It was mainly low skill temporary jobs in rural horticulture and agriculture. Employers weren’t prepared to pay enough to provide an incentive for unemployed from other areas to temporarily move to fill them. So the last Government came to the “rescue” of those employers by implementing a scheme to allow them to bring in itinerant labour from the Pacific Islands on temporary permits.

    There were also similar issues in the public sector – eg with radiotherapists in the health sector – where the pay rate wasn’t sufficient to retain suitably qualified people so many of them jumped on a plane to somewhere they could get much better pay, creating a worker shortage.

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  24. but you can’t expect people on the dole to have any money left over to pay for their own retraining

    How much does it cost for someone to become an apprentice for instance?

    however much stick you may apply, so a subisdy is required for that purpose

    If you tell someone that their benefit will be cancelled if they don’t go on a certain training programme, then they will definitely go for it.

    When were the massive worker shortages john-ston and what exactly is massive?

    It was prior to the recession, and it was in a large number of fields – not just horticulture, but in the health sector, in virtually all the trades, and so on.

    National has had its chance, and made things worse.

    Given that most other Western countries have seen unemployment rise to double digits, I would suggest that an unemployment rate of a mere 7% is something to be satisfied with given the current global economy.

    That said – I recall the dole figures falling to 30,000, but I don’t recall them going as far as below 20,000.

    I do recall them going a slight bit below 20,000.

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  25. So just a few highly skilled medical jobs and temporary jobs at the time of horticutural harvests where few unemployed people lived – that’s the “problem” with success in cutting provincial unemployment to levels not seen since the mid 1980’s. Of course once that problem is solved as it was – the industry has security via the new arrangement and appreciates that this suits it as they get experienced workers returning each year (as local labour availability is scarce most of the time and otherwise would have a low level of continuity – urban people would move on to higher paid jobs).

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  26. Todd says “Pfft! From 3.5% unemployment in Dec 2007 to almost double that, 6.8% unemployment now. National has had its chance, and made things worse.”

    Duh….R word – recession.

    We could always go all left wing like Sweden – at nearly 12% their unemployment is almost double ours (and they’ve been told by the OECD they handled the recession well).

    We could always spend 10-15% MORE than we actually earn every year and get the unemployment rate back down to 3.5%.

    Wait a minute – that’s what caused the recession in the first place.

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  27. Photonz1

    The National Government has no responsibility and can blame our worsening figures on the recession? I don’t think so photonz1. Most other countries are recovering while we have a double dip recession. So that theory of yours is out the door.

    Here’s a brief rundown of Sweden’s social policy:

    http://www.sweden.gov.se/sb/d/2061/a/122937

    Contrast that to Nationals social policy: Cut, slash, sell and burn. You make a very bad choice in choosing Sweden as a comparison to New Zealands failing system photonz1.

    Sweden looks after their poor. Their tax system is only slightly higher, the poor don’t suffer and get stigmatized like in New Zealand, they are able to save, have a great pension and benefit system, their education rates are increasing, they spend around 4% of GDP on R&D, infant mortality is decreasing and their unemployment rate although high, is falling. Can you say the same for New Zealand? Nup! It’s all about value for money and we’re going in the wrong direction.

    http://stats.oecd.org/Index.aspx?QueryName=251&QueryType=View&Lang=en

    Strange that NZ has no recent unemployment figures on that graph. We know things have got a lot worse under the Natz. So I’m expecting you to eat your words or at least your hat when the new OECD stats come out photonz1.

    http://www.oecd-ilibrary.org/economics/country-statistical-profile-new-zealand_20752288-table-nzl

    http://www.oecd-ilibrary.org/economics/country-statistical-profile-sweden_20752288-table-swe

    Remember the figures in these two links above only go up to 2008. They are set to be updated later this year.

    http://www2.rgu.ac.uk/publicpolicy/introduction/wstate.htm

    The Swedish model can be seen as an ideal form of ‘welfare state’, offering institutional care in the sense that it offers universal minima to its citizens. It goes further than the British model in its commitment to social equality. Sweden has the highest level of spending on social protection in the OECD, and the lowest proportion of income left to independent households – less than half its national income.

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  28. Oops! My mistake, they do have recent figures on that graph for NZ. Between Q3 2010 and Q4 2010 is an increase of 7000 unemployed. Nationals social policy in effect.

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  29. @photonz1 6:38 PM

    We could always spend 10-15% MORE than we actually earn every year and get the unemployment rate back down to 3.5%. Wait a minute – that’s what caused the recession in the first place.

    No, it wasn’t. It was primarily banks lending money to people who could not afford to meet the capital and interest repayments on what the banks lent them.

    The problem was private debt, not public debt, apart from a few countries like Ireland and Portugal that ran ridiculous economic policies based on the ability of the private sector to infinitely indebt itself without any comeback.

    The fault of Governments worldwide for the recession is not largely from borrowing – it is primarily for their failure to regulate the finance industry.

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  30. toad says “No, it wasn’t. It was primarily banks lending money to people who could not afford to meet the capital and interest repayments on what the banks lent them.”

    Which is exactly what I said – people spending MORE than they EARN. The only way you do that is by borowing the extra, and we were borrowing more and more each year.

    To the point where year after year the country as a whole was spending 10-15% more than it was earning.

    “In the past 15 years, our total overseas debt has mushroomed from $75 billion to $253 billion. ”

    from http://www.odt.co.nz/opinion/opinion/147778/property-speculation-has-led-edge-precipice

    At that percentage of over spending, effectively everybody earning $600 a week was spending $100 every week more than they earned.

    For several years, the average person in NZ was going into debt by an extra $100 – EVERY week. At some point the debt bubble had to burst. And it did.

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  31. FFS, photonz1 – we agree on something!!!

    Might make a Green out of you yet. What shall we deal with next now we have a significant agreement on economic policy: environmental policy or social policy?

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  32. Todd says “Their tax system is only slightly higher”

    very funny – 60% income tax is only “slightly higher” than 33%.

    And 25% gst is only “slightly higher” than 15% gst.

    Perhaps we should have been like Sweden and instead of lifing gst by 2.5% we should have doubled it to 25%

    They probably need high tax rates to pay for nearly double our unemployment and youth unemployment of 25% (for workers 24 and under).

    So if our right wing system has DELIBERATELY high unemployment (as some people claim), what it the excuse in a left wing country for unemployment that is nearly twice as bad?

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  33. toad “FFS, photonz1 – we agree on something!!!”

    I think we probalby agree on what happened, but you probably think it’s the banks fault and I probalby think it’s the individuals fault.

    Personally I think it’s great that banks have lots of money available for me to borrow if I want.

    But I need to be responsible in how much I borrow (and how much I can repay).

    Just like I need to be responsible about how much I spend on a car.

    The trouble was people were just jumping on what they thought was a gravy train (housing market). But in 2006 and 2007 there were weekly articles in newspapers about overblown prices and the housing bubble, but people kept buying anyway.

    We looked into buying a rental at the time, but rent didn’t even cover interest, insurance, maintenance etc. In fact it barely covered half the costs.

    So why buy a house if the income doesn’t cover the costs. One reason – capital gain. But why would prices keep going up when they were already 30% over valued? Answer – they won’t.

    A 30 second calculation on the back of an envelope showed that the housing market was really sick. All fuelled by years of people spending significantly more than they earned.

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  34. “you probably think it’s the banks fault and I probalby think it’s the individuals fault.”
    OK so lend me a thousand bucks then. It won’t be your fault if I don’t pay it back so you’ve got no reason not to…

    “I think it’s great that banks have lots of money available for me to borrow if I want. ”
    This shows you have a very poor understanding of the global banking system. The banks ‘have’ hardly any of the money they lend, we just allow them to write IOUs based on the idea that they will only lend to people who can pay them back with interest in teh future. Turns out this wasn’t a great assumption to make.

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  35. “All fuelled by years of people spending significantly more than they earned.”
    and yet no one at any of the banks had any responsibility for ensuring that loans were made on a sound basis. I mean, how could they know? – it’s not like banks employ people who’ve studied economics or finance or anything. Their job is just to give out money to anyone who asks for it, right?

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  36. The irony is that the “over-spending” was essentially “investing” in the doubling of house prices 2002-2007 (and also farms) speculative asset bubble. Those highly geared buying rentals have made large untaxed CG – some have cashed up others still owning them borrowed 90-100% of the money and yet now have 25-50% equity and yet have claimed their rental property business lost money and so have written off tax liabilitites against other income. The system that allows this is still in place.

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  37. Given the stress those bank managers were under as a result of all those people they trusted with ‘their’ money defaulting, I think they deserve some kind of bonus payments…

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  38. “The system that allows this is still in place.”

    Ask Photonz: It’s not the system’s fault. It’s the people!

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  39. What happened is clearly the fault of the governments that allowed this to occur – those who set the policy settings. That’s Labour and National, National and Labour. Given MP’s housing allowances mean they are all into rental property themselves that is no surprise.

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  40. SPC says “What happened is clearly the fault of the governments that allowed this to occur –”

    If this is the case, then why didn’t the Greens campaign strongly and loudly about it BEFORE the crash?

    SPC says “The system that allows this is still in place.”

    Not quite. The whole thing (rental returns less than interest and maintenance) only works for landlords if they can get a capital gain.

    And the small measures that have been put in place so far by this govt have ensured there has been no capital gain for the last few years, and probalby not for the next four or five years – maybe longer.

    And the gst rise effectiely devalued every house in the country a further 2.5%.

    The govt is clearly leading a push away from investment in properties to savings and investment in the producive sector.

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  41. The Greens have campaigned for a CGT for years – before the GFC.

    The system is still in place – landlords have less reason to pay down debt if negative returns can result in a tax write-off. National has simply ensured via removing the depreciation allowance more landlords will make losses – but they can still write-off losses against taxable income. Continuing to make capital gains is not required for this to continue.

    PS The raising of the OCR and the GFC ended the rise of property values and the fall that occured between 2007 and 2009 was not caused by a tax change in 2010. So the government can get little credit – they really simply transferred the depreciation write-off from landlords to finance the top rate tax cut: but without costing the impact of tax revenue loss when landlords claimed even more tax losses off property. F.I.

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  42. Phot, you’re cherry picking the information again. Please always link to where you have sourced your data. The information I have does not corroborate yours.

    Your last question to me does not apply. However the answer is that Sweden’s unemployment is not bad because the unemployed there are looked after. We will probably always have a percentage of unemployed. Whether this is a purposeful manipulation is an argument I have not made. The debate concerns New Zealands social policy. I can cherry pick data till the cows come home as well. The fact remains that we’re completely failing to look after the poor in this country.

    Sad to see Shonkey blaming the victims again:

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10706851&ref=newsl_morningnewsdirect_J20080513_133717_5781_6889_875540616

    Ms King had asked Mr Key how his claim that most New Zealanders were better off from the tax cuts package tallied with reports such as that of the Salvation Army, which claimed “food poverty” was at nearly double the level of four years ago.

    Sue Bradford got a bit of traction there. Hurrah!

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  43. SPC says “The system is still in place – landlords have less reason to pay down debt if negative returns can result in a tax write-off.”

    It still doesn’t work unless capital gains more than compensate. Yes – you can lose $10,000 on a rental, and claim that on tax. But with lower tax rates the most you’ll ever claim back on a $10,000 loss is 33% or $3300, so you still LOSE $6700.

    SPC says ” Continuing to make capital gains is not required for this to continue”

    Yes it is. You seem to think claiming loses on tax means you get back 100% – you don’t. The best you can do with a $10,000 loss is offset $10,000 of income – i.e. you will save the tax on $10,000 ($3300 at the top rate) – not the whole $10,000.

    This is actually a common misconception that people think claiming on tax means you get the whole lot back. Wrong – essentially all it means is you don’t pay tax on money you didn’t get, because it was a loss or spent on business expenses.

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  44. Todd – you acuse me of cherry picking, then use Salvation Army figures from four years apart (before and after the recession) to try to prove income teh difference in income before and after a tax cut.

    You must be the only person in NZ who continually forgets about the recession.

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  45. Please link to where you have got your statistics from photonz1. I have not used any data from the Salvation Army, the NZ Herald article did. I would trust the Salvation Army’s data over yours and the Natz anytime of the day.

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  46. The point has obviously gone right over your head.

    The fact that the sallys hand out more food parcels is not mutually exclusive to the fact that people had more money in their pay after the tax cuts.

    You totally ignore teh recession, and unemployment cause by it.

    And if you can’t even acknowledge something as major as the global fianncial crisis then your arguements have little merit.

    I’ve mentioned a lot of stats – what ones do you want links to?

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  47. Mr Photonz – regardless of whether the current pickle we are in is to be blamed on the banks, or the people that borrowed “their” money, or the “system” – and please correct me if i am wrong – but isn’t the point of green politics that in our society we are living beyond our means, polluting our environment, exploiting “third world” countries for their resources etc, etc … ? I guess when enough people see this they will vote for politicians who will change the system – i imagine the banks will resist that though – hmmm i wonder why ? Meanwhile good on the greens for being out there telling it like it is!

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  48. Phot

    You totally ignore teh recession, and unemployment cause by it.

    If you had read my post above, you would see that I did acknowledge our double dip recession. More poverty equals more food parcels, simple as that.

    No more links huh! Says it all really.

    How about your posts 12:49 PM, 9:40 AM & 10:33 AM. Your only other links are for 2004 to 2008, data collected before National got in… Then an opinion of Peter Lyons with no links to where he has sourced his information either. back up your assertion with some facts!

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  49. Todd says “No more links huh! Says it all really.

    How about your posts

    – 12:49 PM,”
    As ALREADY stated, the quotes are from YOUR link.

    “-9:40 AM”
    Swedens horrific tax rates (59% top personal rate and 25% gst) are very well know to most people. They are well known and can be found easily, but if you are unable to find them or dispute what everyone else knows, ou’ll find a summary here –
    http://en.wikipedia.org/wiki/Tax_rates_around_the_world

    & 10:33 AM.
    No links – just very basis informantion that every buisness owner and landlord knows. When you claim sonmething on tax – you don’t get the whole lot back – all you do is offset your income.

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  50. Phot

    I totally disagree with you off course. Firstly you cannot compare a country that looks after its poor to a country that does not by plucking statistics from reports. A comparison of Tax rates has little relevance when it is the wealthy who are benefiting most from them. Taxes do not have to go up across the board to provide proper welfare. The rich just need to stop rolling in the trough for a while.

    NZ has twice the infant mortality rate as Sweden. That’s the real indicator of poverty.

    It’s all about distribution of wealth, and presently there is not enough going to our poor for them to adequately survive, and too much going to the wealthy who seem to have no consciousness of the suffering such disparity causes. Your resentment towards the poor is well known photonz1, however please keep this in mind; beneficiaries lose their dignity because of improper distribution of wealth and taxes, not poor lifestyle choices of the starving and impoverished.

    There is large variation to the tax system within Sweden. The main difference I would like to highlight is their tax trend, taxes are decreasing there while all their services are increasing. That’s probably due to a efficiency factor over time. You cannot say the same for New Zealand, even though we are working harder and longer than ever before.

    It’s also about having a deficit every week which starts to add up quickly. By the time comes to pay the bills, who are you gonna call?

    http://norightturn.blogspot.com/2011/02/let-them-eat-cake.html

    So, there we go. According to Key, if people are slowly starving on benefits, its not because his party set benefits at starvation levels back in 1991 as an “incentive”, its not because they’re basically inadequate to sustain people at a decent (as in “not indecent”) standard of living, able to ensure their basic needs for food, clothing, and a roof over their heads are properly met; no, it’s because they made the wrong choice. Qu’ils mangent de la brioche indeed.

    A typical solo parents Income:

    * DPB + Temporary Additional Support (net of repayments to WINZ for benefit advances) – $289.86 pw
    * Accommodation supplement – $125.00 pw
    * Family support (one child aged 12) – $86.00 pw
    * Disability allowance – $16.46 pw

    TOTAL – $517.32 pw

    Fixed costs

    * Rent (2.5-bedroom flat in West Auckland) – $295.00 pw
    * Petrol (to Unitec Mt Albert 5 days pw + hospital visits etc) – $90.00 pw
    * Debt repayments (credit card + HP for child’s clothes & shoes) – $50.00 pw
    * Power – $38.00 pw
    * Child’s bus home from intermediate school – $27.00 pw
    * Phone/internet (required for study) – $26.00 pw
    * Parking (Unitec) – $12.00 pw
    * Medical costs (fixed weekly payment to friendly GP) – $10.00 pw
    * Water bill – $10.00 pw
    * Fines (no WOF or rego on car – still can’t afford WOF) – $10.00 pw

    TOTAL – $568.00 pw

    Net deficit before food – $50.68 pw
    Deficit allowing $100 for food – $150.68 pw

    Perhaps you would like to provide us with a break down of a typical person on the unemployment benefit photonz1?

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10666600

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  51. Photonz:

    In case you hadn’t noticed, the whole world including NZ went into recesion at the time of the last election. To blame the current govt for this and the resulting increase in unemployment is ludicrous.

    I don’t blame the government for the crisis or the unemployment; It is the responsibility of employers and business people.

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  52. “In case you hadn’t noticed, the whole world including NZ went into recesion at the time of the last election. To blame the current govt for this and the resulting increase in unemployment is ludicrous.”

    no but to question how they should be treated – given that the recession is to blame (as you acknowledge) and not them – seems pretty fair when the government seems to think kicking people off benefits and firing public servants is going to help the unemployment situation…

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  53. Their tax system is only slightly higher

    And where it counts (corporate tax rates), it is lower than New Zealand.

    The fault of Governments worldwide for the recession is not largely from borrowing – it is primarily for their failure to regulate the finance industry.

    And the moral hazards that were created when governments bailed out private companies – especially the Savings and Loans in the 1980s. Also, don’t forget about the Clinton-era laws that forced banks to lend to poor people.

    Petrol (to Unitec Mt Albert 5 days pw + hospital visits etc) – $90.00 pw

    Todd, why doesn’t said single parent take the train through to UNITEC? There is a train station a stones throw away.

    National has simply ensured via removing the depreciation allowance more landlords will make losses – but they can still write-off losses against taxable income.

    SPC, depreciation is treated as an expense, and therefore removing it will mean that more landlords will make a tax profit as opposed to a tax loss.

    Of course, the big problem that everyone forgets is that because of leverage, rental properties can make a fortune in an up market. Prior to the Global Financial Crisis, the capital gains that were possible on a rental property could have resulted in returns of over 100% on the equity put in.

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  54. John-stone

    Todd, why doesn’t said single parent take the train through to UNITEC? There is a train station a stones throw away.

    Perhaps the daycare is not in a convenient position and buses are not available in the morning. You will need to ask them that. Circumstances should not limit a persons ability to survive. I would surmise that the relative savings you presume can be made on that $150 per week deficit would not be considerable enough for it to be worthwhile debating.

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  55. Todd – your income figure for someone on the DPB totalled “TOTAL – $517.32 pw”.

    So why would someone work 40 hrs on the minimum wage when they get MORE by getting pregnant.

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  56. Phot.

    That’s not my figure. Personally I think that accommodation supplement amount listed is far more than what most beneficiaries get, but then again look at how much their rent is. I do agree with you that the minimum wage is not enough, but there is only one solution to that. Perhaps scroll up and have another read of this:

    Most of the people on welfare are unmarried mothers – many of them teenagers – who have extra children so that they can get more money

    Surely you can come up with a better argument than that photonz1.

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  57. I would surmise that the relative savings you presume can be made on that $150 per week deficit would not be considerable enough for it to be worthwhile debating.

    Todd, except the savings aren’t that small. Said beneficiary spends $102 a week on petrol and parking – if she took the train to UNITEC, and perhaps the bus to get around, she could reduce that amount by $50 per week assuming that she got a Monthly Discovery Pass ($230 per month). $50 per week is a significant amount of money.

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  58. The claim that most of the people on welfare are unmarried mothers is untrue. First some of the people on the DPB are solo parents who are men, even more are woman on the DPB who have separated from their partners but not yet divorced (many of them are even back to work before the divorce comes through if jobs and childcare are available) and third even the total of those on the DPB is not a majority of those on main benefit welfare.

    Also untrue is the claim that a woman on the DPB gets more than she would working in a job.

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  59. Not only that SPC, but the Domestic Purposes Benefit isn’t really the problem – of the $21.2 billion appropriated by the Ministry of Social Development in the 2010 Budget, only $1.76 billion is to be spent on the Domestic Purposes Benefit. The biggest welfare expenditure is the nearly $9 billion on NZ Super.

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  60. Yes photonz landlords can get an effective tax write-off of 33% on their rental property losses. The “charity” involved is a government subsidy of those who over-geared on foreign borrowing to speculate in property. And this welfare charity needs to end if the countries foreign debt is to reduce.

    And many landlords can accept losses on their rental property even while values fell – you seem to assume that landlords are dependent on borrowing against the rising value of a property to finance their rental property losses. That is the high end risk end of the market (those speculators who enter the market late in the day) and most landlords are not that stupid. In fact many landlords will be using the top rate tax cut to finance their rental property losses.

    It’s by ending the tax losses that the property market can be held down and the level of foreign debt to GDP can be reduced. We don’t want values to just sit 10% below where they were for a few years, they need to fall another 10% in nominal value – to 20% below their peak and be there for 5-10 more. I would not want house prices back to their 2007 nominal level till 2020.

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  61. Todd quotes the top of the page “Most of the people on welfare are unmarried mothers – many of them teenagers – who have extra children so that they can get more money”

    Then says “Surely you can come up with a better argument than that photonz1.”

    Utter nonsense Todd – you take a quote from someone else then falsely say that it’s my arguemnt.

    I’ve never hear anybody argue that. Just like the so called “myths” at the top of the page.

    Any idiot can take an extreme position that very few people have, call it a myth, then dispell it.

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  62. Todd says “I would surmise that the relative savings you presume can be made on that $150 per week deficit would not be considerable enough for it to be worthwhile debating.”

    And the list of excuses to do nothng continues to grow.

    SPC says “Yes photonz landlords can get an effective tax write-off of 33% on their rental property losses.”

    Yes – so if they lose $10,000, they can claim $3300 back, meaning they STILL LOSE $6700.

    You want a house price drop of 20% on 2007 – that’s not enough. They were already 30% over their historic values.

    So just to get bacjk to their historic average, they need to drop 30% (it would be better if they went LOWER than their historic average).

    So far they’ve come back 15% (roughly half in inflation and half in falling prices.

    So even if they stay where they are now for four or five years that should bring them back 30% from their highs.

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  63. Yes – so if they lose $10,000, they can claim $3300 back, meaning they STILL LOSE $6700

    Whereas that is absolutely true, the 3.3K they “get back” is still a wealth transfer from the taxpayers to a business person. Its no different than a benefit.

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  64. photonz – you do realise a 20% fall in “nominal value” of house prices is where a house at $400,000 falls to $320,000 (they’re not even at 360,000 yet) and this us more radical than you appear to realise.

    But such a serious approach is required to deter borrowing led investment in rental property. We need to do this to reduce foreign debt against GDP and enable people to own their homes.

    1. Depreciation write-offs
    2. End claim for property losses against other taxable income
    3. A 1% surcharge on rental property mortgage interest

    Gradually build up and maintain pressure to hold down values and force more and more investors to sell.

    Related moves

    1. Ending the Kiwi Saver tax credits and using the $Bpa saved to afford reduced tax on interest income (encourage landlords to take their money out of the asset bubble – repay foreign loan mortgage debt and place the equity in banks).

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  65. dbuckley says “Whereas that is absolutely true, the 3.3K they “get back” is still a wealth transfer from the taxpayers to a business person. Its no different than a benefit.”

    Wrong.

    Put simply, like wage earners, they are taxed on what they earn.

    So if they earn $50,000 in a job or from another business, and lose $10,000 on their rental, their actual income is $40,000, and they are taxed on that.

    The gamble for them is they will make more than $10,000 each year on capital gains. So for the last few years (and the next few) anyone in this situation is losing $10,000 a year on a rental.

    They can offset it against any other income, but they are still losing badly.

    It’s not really any different to any other business – say a car workshop, who borrowed form the bank to build on a panelbeating workshop. For many years the panelbeating side of the business might have a large mortgage, and make losses until it lowered debt and increased client numbers.

    So the business is taxed on the actual profit it makes. Losses from one part of the business offset profits.

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  66. SPC – the nominal value is not particularly relevant. Because a nominal value of $400,000 in 2005 is significantly different to a nominal value of $400,000 in 2011.

    Even a house that was $400,000 in September and October last year had effectively dropped 2.5% in value the day GST came in.

    SPC says “But such a serious approach is required to deter borrowing led investment in rental property. We need to do this to reduce foreign debt against GDP and enable people to own their homes.”

    I agree 100%. The govt hasd already talked about the first two things on your list. And the talk alone is having the desired effect on the market.

    You can add capital gains tax to your list of frighteners. However depending on what happens to the market (i.e. if it carries on as it is now) then we may not need any of these measures.

    The important thing is what you said next “GRADUALLY build up and maintain pressure to hold down values and force more and more investors to sell.’ (my capitals)

    If we have a housing market collapse, we will have lots of losers, and they will be those people least able to afford their mortgages (mortgagee sales have changed from mainly landlords a couple of years ago to mainly owner-occupiers today).

    A stagnant market for 4-5 years will bring the market back to historical prices and affordability. Landlords making losses see they are uin an unsustainable position when they fail to get the capital gains they need to offset the losses.

    But I agree we should go further than that.

    However current policy changes have had exactly the right result – a small drop, combined with inflation to make a 15% decrease, but no major haemorrhaging of the market.

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  67. The fall in property value was not caused by housing policy changes – the fall happened in 2008 before the current government was elected. It began before the GFC. Because of rising interest rates and after the GFC banks requiring 20%+ deposits.

    The nominal value is important to the bank and to those holding a mortgage they have to repay when the property is sold. It’s also movement in this value (at valuations) that the market notices more.

    The mortgagee sales by home owners have nothing to do with housing policy but people losing jobs. And firmer policy is targeted to impact on landlords. Tougher policy impacting on landlords would ideally occur as homeowners had improving job prosepcts and wage rises – getting foreign debt down in any major way can only really come by reducing the nominal value of landlord property. Otherwise it’s just as a proportion of GDP.

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  68. Housing policy will become increasingly important to welfare because if people are priced out of home ownership they become dependent on accomodation supplement. The more people who can afford to own their homes the lower this welfare cost can be reduced.

    And in the end those who own their homes in retirement will not add to demand for limited supplies of state housing. Imagine the welfare cost of having less than 50% of those retiring not owning their own homes and either taking up state houses or requiring the accomodation supplement.

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  69. I some questions for Photonz.

    What does tax return, drop rates, percentages and all that jazz have to do with helping to fix the increasing unemployment and the atrocious infant mortality rate both of which can be related to welfare? I just need to understand how the solution to our countries problems are to starve the uneducated and underpriviledged?

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  70. It’s all about ‘incentives’, Hine. Apparently being on welfare isn’t miserable enough at the moment, so they need to make it worse. Only when it’s truly unbearable will people want to live fulfilling prosperous lives instead.

    A pretty sad view of the world and one’s fellow humans, aye?

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  71. Phot

    And the list of excuses to do nothing continues to grow.

    It’s not an excuse. I don’t happen to think it’s appropriate to debate and make assumptions about a real persons circumstance. That’s why I asked you to come up with a weekly income verses expenditure budget for an average unemployed person. Let’s see if you can make it work on paper?

    PS Stop jacking the thread.

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  72. Hine asks “What does tax return, drop rates, percentages and all that jazz have to do with helping to fix the increasing unemployment and the atrocious infant mortality rate both of which can be related to welfare?”

    It has EVERYTHING to do with it.

    In 2008 it took 80% of a median wage to pay the mortgage on a median house – twice the historical rate.

    So if the median household is paying nearly HALF A WAGE extra (for the same set of houses we had ten years ago) to service offshore housing debt, everyone has vastly less money.

    And it makes little difference of whether you pay the mortgage directly or via rent through a landlord – high house prices took a giant chunk extra out of everyones income.

    So getting house prices under control will stop the transfer of vast sums of money out of everyones pockets to overseas banks, and we all will have more to spend on other things – at New Zealand businesses.

    The net result? More money in everyones pockets, NZ businesses doing better, and more jobs.

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  73. And this welfare charity needs to end if the countries foreign debt is to reduce.

    The problem is that renters will suffer as a result – we are already seeing it in Auckland where rents have increased by 7% in the last year (with some suburbs as high as 24%), and where demand is so high that some people have offered six months rent in advance just to get into a rental.

    Gradually build up and maintain pressure to hold down values and force more and more investors to sell.

    SPC, and what about those who will face the prospect of their rents going up to astronomical levels? Thanks to the removal of the depreciation allowance, we have already sent rents rise in Auckland, and with your proposed measures, it would get to the level that some will simply not be able to cover their rental costs.

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  74. Todd says “Can’t even make it work on paper eh photonz1. Says it all really!”

    Forget about on paper. I’ve spent several years with no income.

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  75. john-ston

    The increase in rents is related to a shortage of total housing in Auckland, not a change in the ownership of property or the value of property or the costs of landlords – if that were the case the rent increases would be nationwide and that is not the case.

    There have been warnings for over a year of a looming shortage of housing in Aickland because of a decline in new home starts. The government knew this and did nothing or next to nothing.

    Seriously do you really believe the rise in rents in Auckland is caused by landlords passing on the cost? You do understand how markets work right? You note that there is a shortage of housing, so you know what is really causing the rents to go up – so stop trying it on.

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  76. The increase in rents is related to a shortage of total housing in Auckland, not a change in the ownership of property or the value of property or the costs of landlords – if that were the case the rent increases would be nationwide and that is not the case.

    SPC, I have two comments. Firstly, the second Herald article on the topic commented about rents in Northland and the Bay of Plenty also increasing to some degree. Secondly, in provincial New Zealand, where the housing boom was not as pronounced, the rental yields did not drop as dramatically as they did in Auckland – basically, that means that any attack on the landlord was going to have an amplified effect in Auckland.

    There have been warnings for over a year of a looming shortage of housing in Aickland because of a decline in new home starts. The government knew this and did nothing or next to nothing.

    What should the government have done SPC?

    Seriously do you really believe the rise in rents in Auckland is caused by landlords passing on the cost?

    Yes

    You do understand how markets work right?

    Yes, but it seems that you do not know how they work. Let me tell you in a nice simple form.

    Government removes depreciation allowance – assuming a building value of $200,000, this means the loss of $25 worth of tax benefit per week. The landlord has three options, they can either

    a) Absorb the cost
    b) Exit the market
    c) Pass the cost on

    Some would do a, others would do b and thanks to those taking option b, the supply of rental properties in Auckland has decreased, meaning that option c becomes more viable.

    You note that there is a shortage of housing, so you know what is really causing the rents to go up – so stop trying it on.

    It is just interesting that for a political party that is so interested in the fate of New Zealand’s poor (the overwhelming majority of whom rent anyway), there has been deafening silence about the spike in rents in Auckland, which will have a disproportionate impact on the poor.

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  77. john-ston – if a landlord exits a market he sells the house to another landlord (no change in the market) or sells it to someone who no longer rents (no change in the market). The only way rents can rise (to pass on higher costs) is if demand is not reduced by the price increase – that is indicative of a housing shortage.

    To simplify it, if the government policy is to lower house values in nominal terms (and even more in real terms) to

    1. improve social outcomes domestically (make home ownership affordable for more people because this reduces accomodation supplement cost to government and also pressure on state housing when people retire living in their own homes.

    2. reduce the private sectors foreign debt to lower levels of GDP to reduce the destabilising high level of our BOP deficit.

    then it does need to prevent a housing shortage occuring while it is trying to encourage investment in the productive sector of the economy rather than housing (speculation for untaxed CG is encouraged by shortages).

    As to how the government does this while the private market is only building new homes at a very low rate. By borrowing money and investing it to increase housing stock and then selling the houses to repay the loan.

    It’s similar to English refusing to borrow to fund the “Cullen Fund” so it could make more money buying up stocks during the bounce. It’s a guaranteed winner but English was/is too conservative.

    The economic returns from the activity (and the subsequent multiplier impact realised by restoring confidence) to generate tax revenues that would more than cover the cost of the loan. So the other gains more affordable housing (in price of purchase and cost of rent), reduced accomodation supplement cost to the government budget and retaining a skilled workforce (rather than having people leaving the industry or going to Oz) are just side benefits.

    It’s an area where government has a budget and economic interest in this happening but the private secotr cannot obtain finance or be sure of a profit – but the government is advantaged so has to act – only a tory would do nothing.

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  78. PS As to the idea that perpetuating the process whereby fewer and fewer people could afford to buy a home and government subsidised the landlords profits (depreciation write-offs and tax losses) and was taking on a greater and greater burden of subsidising rents via the accomodation supplement) is the right thing to do … . Things would get worse than what they were.

    Do you generally support subsidy of an industry driven by ambition for personal untaxed capital gain, without adding anything to improvement in productivity and in fact placing the nation deeper and deeper into foreign debt?

    Compare the scenario to farming – no subsidy and coping with a 30% fall in farm values. Farm values are now being set in the market based on return on investment rather than the prospect of future capital gain. If foreigners were excluded that would allow locals to buy and still have room to invest some of the profits in improving performance added value co-operative ventures.

    That reduced down value needs to happen to rental property too – so at the lower values the returns are OK. And that would also mean that more people could afford to buy a home.

    Have you not been following the economic debate about the harm to the wider productive economy of enabling this asset bubble to continue?

    PS What you suggest sounds a lot like trickle down – the concept that only if the landlords have it so good can some benefit trickle down to growing numbers of people unable to buy their own home. Problem is the cost to the economy is such that public services become unaffordable.

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  79. Do you generally support subsidy of an industry driven by ambition for personal untaxed capital gain, without adding anything to improvement in productivity and in fact placing the nation deeper and deeper into foreign debt?

    SPC, strange as this may sound, I support the removal of all subsidies to rentals (that includes things like the Accommodation Supplement which acts as a de facto subsidy) – the issue I have is the order in which things are being done; the first thing that needs to be done is removing the tight restrictions on the development of housing (for instance the Metropolitan Urban Limit in Auckland, and aspects of the Resource Management Act that make it unreasonably expensive to develop housing), and once house prices have declined as a result, then remove the subsidies. At the time the subsidies were removed, yields should be more or less back to normal, so there should be a limited change in rents.

    Your approach would remove the subsidies and hope that house prices would decrease. That would drive investors from the market and push rents to a high level in order that yields would get back to normal.

    That reduced down value needs to happen to rental property too – so at the lower values the returns are OK. And that would also mean that more people could afford to buy a home.

    There are two ways in which yields can get back to normal, and you fail to consider rents increasing.

    Have you not been following the economic debate about the harm to the wider productive economy of enabling this asset bubble to continue?

    As I pointed out earlier, I am keen to see the asset bubble to be burst, but in the right order. First of all, you need to deal with the supply end of the equation through making it easier for developers to build decent houses. Then, with yields more or less back to normal, you can remove the “subsidies” to landlords without rents increasing to insane levels.

    if a landlord exits a market he sells the house to another landlord (no change in the market) or sells it to someone who no longer rents (no change in the market). The only way rents can rise (to pass on higher costs) is if demand is not reduced by the price increase – that is indicative of a housing shortage.

    You are working on a big assumption – and that is the assumption that a person of a similar income level to the person that was renting bought the house. The reality is that it is more likely that a higher income individual, who was more likely to have been renting a more expensive house, would be purchasing that starter home. The net amount of houses might not have changed, but the mix has toward more expensive rentals – this would be particularly so in decent suburbs.

    As to how the government does this while the private market is only building new homes at a very low rate. By borrowing money and investing it to increase housing stock and then selling the houses to repay the loan.

    SPC, the problem is that when the government develops areas, they become crime ridden. I don’t need to remind you of the crime problems attached to areas such as South Auckland, Porirua and the Hutt Valley.

    The other problem is that the government is not always demand responsive – we have seen that with state housing where there is a demand and supply mismatch (by that I am referring to dwelling size and not the overall high level of demand) that dates from the time of the previous Labour Government.

    It’s similar to English refusing to borrow to fund the “Cullen Fund” so it could make more money buying up stocks during the bounce. It’s a guaranteed winner but English was/is too conservative.

    SPC, it is generally reckless to borrow money to make investments in shares because of the overall volatility (don’t forget about the 1987 crash). It would be alright if the “Cullen Fund” were purchasing companies whole, because you don’t have that level of volatility.

    It’s an area where government has a budget and economic interest in this happening but the private secotr cannot obtain finance or be sure of a profit – but the government is advantaged so has to act – only a tory would do nothing.

    Except, all we will end up with is more crime ridden areas – and people would not live there because they would know that within a few weeks of moving in, all their nice things would be gone courtesy of some “kind” burglar.

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  80. john-ston – it’s absurd to presume that if the government built houses to prevent a housing shortage that the areas involved would become crime-ridden. Housing areas are not crime-ridden because of who builds them, but because of societal issues related to inter-generational poverty. You have to completely forget the houses would be built to be on-sold to imagine this is a relevant point.

    As to the issue of the AS, it was introduced as part of a market rents strategy for state housing – that Labour later over-turned but the AS continued because frankly benefit numbers had increased beyond the capacity of state housing to cope. However there is a perverse side-effect of inflating home values (when coinciding with no CGT allowing rent returns commensurate with higher property values) relative to wages. This places the AS cost on government.

    A better housing policy designed to hold down home values while wages increase should reduce the AS cost (relative to growth/GDP) and yes at some point the AS itself has to be considered.

    But we have state house numbers at 66,000 and we have 68,000 unemployed, 100,000 on the DPB and over 100,000 on SB and IB as well as those who retire without owning a home and no more than Super to live on. And then there is the problem of restricting the AS to those on benefits – when so many others work limited hours and or for low wages in high accomodation cost areas.

    So until we find a way to work that out we are stuck with the AS and are left trying to reduce its cost to government as best as can be done and that includes getting as many people into home ownership before retirement as possible.

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  81. You have to completely forget the houses would be built to be on-sold to imagine this is a relevant point.

    SPC, many of the houses in South Auckland, Porirua and the Hutt Valley were later sold on with a minority being kept as state houses. In spite of that, there are still issues with crime in those areas.

    Housing areas are not crime-ridden because of who builds them, but because of societal issues related to inter-generational poverty.

    SPC, did Ponsonby have a massive crime rate? Did Freemans Bay have a massive crime rate? Did Parnell have a massive crime rate? Did Te Aro have a massive crime rate? Did Thorndon have a massive crime rate? At one time or another, each of these areas were poor areas.

    About the only crime of note in poor areas in historic times was related to the Opium Dens that used to be found in places such as Greys Avenue.

    A better housing policy designed to hold down home values while wages increase should reduce the AS cost (relative to growth/GDP) and yes at some point the AS itself has to be considered.

    Agreed, and I understand the circumstances around the introduction of the Accommodation Supplement.

    So until we find a way to work that out we are stuck with the AS and are left trying to reduce its cost to government as best as can be done and that includes getting as many people into home ownership before retirement as possible.

    Agreed, like I said above, I would not be removing the subsidies until house prices have been reduced through measures that would make it easier for developers to develop good quality houses (I emphasise the good quality, as there are good regulations which prevent the construction of bad quality houses).

    A better housing policy designed to hold down home values while wages increase should reduce the AS cost (relative to growth/GDP) and yes at some point the AS itself has to be considered.

    Any policy that would aim to restore median house prices of three times the median household income will probably result in a decrease in house prices. It would also have the added side effect of discouraging landlords from investing in property as much of their equity would be evaporated.

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  82. John-ston

    The issue with crime in Porirua IMHO (and I live just down the block), is that a whole community was created to provide a concentration of semi-skilled/unskilled labor for a car assembly plant. Then they took the plant away.

    So unemployment and unemployability is rife in that community. For all that the people there are quite pleasant and friendly.

    The idea that “assembling” cars from imported parts in NZ, could possibly be a good idea in an environment where money moves as freely as it does here, is risible. That however is what was done. Not building cars, just assembling them. In any case, the population mix of Porirua was affected badly and a concentration of poverty was created when the plant shut down, that exists to this day.

    I have no doubt we can do better, but now there is not much unskilled/semi-skilled work to be had. Accepting my note in another thread about the effects of more intelligent machinery on production and productivity means that we are going to have a community in Porirua that cannot “produce” as well as the machines do in general, and thus will remain largely unemployed and unemployable. Not through any fault of their own.

    So reducing crime means working out something else for people to do and some better way of supporting them than a grudging and demeaning handout accompanied by exhortations to find work that does not exist.

    The houses don’t cause the crime. The concentration of poverty does.

    The concentration of poverty itself of course, is not a sole cause, but combines with the complete lack of any other distractions and the “easy” money available through the illegal drug trade.

    We can do better of course, but the displeasure of our owners when we remove the collars from around our necks is clear from the red-faced rants from the right when we discuss doing that little thing.

    BJ

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  83. The concentration of poverty does.

    The problem with that comment is that Ponsonby never had a massive crime rate. Neither did Freemans Bay. Both of them were extremely poor to the point that Freemans Bay was earmarked for slum clearance (and half of it was eventually redeveloped as light industry, that being the eastern side of what is now the motorway).

    So reducing crime means working out something else for people to do and some better way of supporting them than a grudging and demeaning handout accompanied by exhortations to find work that does not exist.

    Again, I point out the trades where until the Global Financial Crisis hit, there were massive shortages of workers. Undoubtedly when the economy gets back on its feet in a few years (a deleveraging recession usually lasts longer than the standard type), there will still be those shortages, especially when we consider that the average age of most trades is increasing.

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  84. The problem with your fixation on Ponsonby is that you are comparing poor neighborhoods in different times and places.

    Porirua is 20 km outside of Wellington central, and the Cannons Creek area which is the center of the poverty is less convenient still. The assembly yards shut down in 1998.

    Ponsonby is 2 km out of central Auckland and was not historically populated with a single class of people to create a workforce for a factory, and its gentrification took place much earlier.

    There were massive shortages of workers somewhere I do not doubt, but there is and was stuff-all industry done in Porirua these days. Certainly nothing that can absorb the population of potential low-middle skilled workers. You discuss TRADES when the suburb is flooded with people who would love to get into one of them… but there are more than enough already.

    Basically John-ston, you can’t make the case that these are the same situations and then blame the public housing for the problem. I have often pointed out (though not here) that a concentration of public housing leads to a concentration of poor people… and THAT is bad.

    However, the rest of what I have said about work and available work, about automation and about productivity and social structures, all that seems to have whizzed right past you.

    If the real problems aren’t addressed, the real questions not asked, then the efforts made to correct them will be as failed as the previous ones.

    respectfully
    BJ

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  85. There certainly is a conundrum within New Zealand concerning placement of housing for industry that no longer exists. The solutions are not readily apparent either. A solution must be considered though, and not one as silly as lifting the retirement age or blaming the effected, which is simply unacceptable.

    What we want is more people working less hours for more remuneration. I know, easier said than done. A person should have the ability to earn enough money to survive and enough leisure time to enjoy the fruits of their labour… Not a miss match of some working longer hours into an early grave while there’s a lack of employment opportunities for others.

    There are clear benefits to having more people employed, and not just economically. Giving people the skills so that they can multitask in various positions is very rewarding. The obvious considerations have a knock on effect into many of New Zealands appalling statistics. An observable decrease to unemployment levels will give impetus to any economic recovery, not only in the intellectual and production skills that are required, but also the flow on effects of more education and infrastructure development. De-stigmatising the victims through work that is available is recommended.

    Such social manipulation would require a rebuild in areas that required redevelopment, replacement and/or new structure deployment… Thus creating more jobs. The information, tools and materials are available to implement and manage such a system, why aren’t they being used? I believe another positive effect would be a decrease on the tax system and potentially a four-day working week.

    Such a system can only be implemented when people receive a fair wage for their work though, which in turn requires a change at the top. A change in how we undertake prosperity with consideration to climate change must be made. Personally I’m all for a larger well educated workforce where clever management finds positions logistically acceptable to an economic recovery, the people and the ecological considerations we are facing.

    http://en.wikipedia.org/wiki/Behavioral_economics

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  86. The problem with your fixation on Ponsonby is that you are comparing poor neighborhoods in different times and places.

    The point that I made is that poor neighbourhoods do not make for crime ridden neighbourhoods. State developed neighbourhoods do make for crime ridden neighbourhoods though.

    There were massive shortages of workers somewhere I do not doubt, but there is and was stuff-all industry done in Porirua these days. Certainly nothing that can absorb the population of potential low-middle skilled workers. You discuss TRADES when the suburb is flooded with people who would love to get into one of them… but there are more than enough already.

    Granted there are issues with people being located in the wrong centres and that is something that needs to be addressed. Perhaps some stick needs to be applied with respect of encouraging people to find a job (or suitable training) in a centre outside their current one.

    Basically John-ston, you can’t make the case that these are the same situations and then blame the public housing for the problem. I have often pointed out (though not here) that a concentration of public housing leads to a concentration of poor people… and THAT is bad.

    Ponsonby had a concentration of poor people, so did Freemans Bay, so did Te Aro and so did all those other gentrified suburbs – but none of them had a massive crime rate. It isn’t the poor people that causes the crime problem, it is the entity that develops the housing. A private landlord is more likely to be cautious about the person that they allow to rent their property, whilst the state has to accept that application – even if the person is a member of Black Power and spends their weekends robbing houses for the sake of it.

    However, the rest of what I have said about work and available work, about automation and about productivity and social structures, all that seems to have whizzed right past you.

    Mostly because I agree on the points about the impacts of automation and so on.

    If the real problems aren’t addressed, the real questions not asked, then the efforts made to correct them will be as failed as the previous ones.

    One of the biggest problems in New Zealand is housing unaffordability and that has been brought about through governmental policies (both local and central) that make it difficult for developers to build good quality houses for decent prices. If both local and central government removed those harmful policies, then house prices would nosedive – and then we would be able to address the issues surrounding the subsidisation of landlords, and the issues of poor household saving, and the issues around many of our more serious economic ills.

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  87. It isn’t the poor people that causes the crime problem, it is the entity that develops the housing.

    Sorry but I still have to disagree. The fact that state housing developments have put many state houses next to one another means that the problems of poverty are concentrated. That IS a problem, but the notion that “state housing” causes crime remains ludicrous.

    If you have a problem with people from “Black Power” existing, then you have to work out how to uncreate THAT problem. It is of a certainty not a product of giving them a place to live. It is a problem of creating the conditions for them to flourish in the first place.

    Back when other suburbs got “gentrified” 20 and 30 years ago, the gang control of drugs and the war on drugs had not yet given gangs such a huge boost in power and money. Moreover, there was no shutdown of central Auckland denying the inhabitants easy access to work.

    Even so one could resolve much of the crime and the gang problems in places like Cannon’s Creek, by taking the advocates for the “war on drugs” and putting THEM in jail instead. Let the pharmacies and MDs dispense what drugs are needed and let the addicts get treatment as they wish. Provide a decent support level for the unemployed and the gangs and crime would diminish in importance within a year.

    There are plenty of people who live there who would like to see the suburb become more user-friendly but there is not, in the concentration of poor people, enough money to provide much in the way of amenities. The rich folk move to other nearby suburbs. Aotea… Whitby… Papakowhai Easier to reach the trains to work in Wellington… there is little work in Porirua for the highly skilled.

    You are funny a bit, offering that the people living there be given a little stick to move them somewhere else, when there is stuff all work on offer for people of their educational attainments anywhere in the country.

    That little problem of automation that you agreed exists, has reduced opportunities for people at the lower capabilities across the board over the past 20 years. They could work to inefficiently produce something that can be bought cheaper from the South Koreans who churn the things out from automated assembly lines… or compete on wages with the Chinese. I am sure you’d like that. I don’t regard it as a fair way to treat my fellow citizens.

    I agree that unaffordability is a massive problem here, but I do not agree that it is just the problems the developers face. The fact that the prices have been bid upwards through speculation encouraged by bankers and ill-considered tax breaks has to rank as a co-equal issue or might even be more important. Moreover, arrangements for developers are such that the owner-builder is almost entirely locked out. If I thought just one thing was wrong with the housing market here I’d be a fool… I haven’t seen such a snake-filled cesspool in my life.

    So I agree with you that there are problems with councils and policies still, and I have no patience with the notion that the council has the liability. That’s a matter between me, the bank, the builder, MY inspectors, and his/her insurance. Doesn’t matter if he goes belly up… the bank, the inspectors and the insuror’s inspectors will keep the MF honest… and if he can’t cheat he might as well stay in business.

    Suing councils for leaky homes is as dumb as letting the builders decide what the rules are, as government did to create the leaky homes. I am not sympathetic at all. Letting developers decide where to build and place demands on infrastructure is pretty silly too. The nature of the planning and section development has to involve councils and yet, the costs of the infrastructure development shouldn’t be dropped on the developers… the infrastructure and the development far outlive the initial buyers yet the developer has to recoup his expenditure from them. The council should be doing it through the rates.

    Meh! It is as I said, a cesspool remarkably stuffed with snakes.

    State housing however, is not the cause of crime.

    …and concentrated poverty is only one ingredient, not a sufficient condition.

    BJ

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  88. Fight back against the bullies people:

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10707698&ref=newsl_morningnewsdirect_J20080513_133717_5781_6889_875540616

    Former Green MP Sue Bradford, who now leads a new group called Auckland Action Against Poverty, said the report was shaping up to make the 1991 benefit cuts look like “chicken feed” in terms of their impact on present and future beneficiaries. Her group plans a protest action at the Henderson Work and Income office at 2pm tomorrow, two hours after the report becomes public.

    She said a key theme would be improving outcomes for the 222,000 children who are growing up in welfare-dependent homes. That will include expanded programmes for teenage parents and their families – a crucial group because most beneficiaries with children are sole parents and a third of all sole-parent beneficiaries had a first baby before age 20.

    How does cutting benefits help child poverty rates?

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  89. Phot – you missed the whole paragraph and the most important question to all of your arguments

    “I just need to understand how the solution to our countries problems are to starve the uneducated and underpriviledged?”

    Once again, please explain how any of these numbers that you love to crunch are suppose to help someone on welfare and starving feed themselves. Most people who are on welfare have nothing to do with the housing market, they can barely afford to eat let alone care about mortage rates. How is punishing the people who never had any form real capitol suppose to save our country?

    You keep going back to housing and mortage and interest and all the rest of it. People who were born into poverty are being made to suffer even more and the ranks of “priviledged” New Zealanders who have never known that kind of hardship are experiencing an all too harsh unfamiliar reality that is too familiar for some. How does cutting off the ability to help the underprivleged suppose to help the Nation? I dont understand why they have to have loose services that they rely on and which we have managed to support for years to get the country out of trouble when they had nothing to with it being in the state its in, in the first place? Here’s a thought, how about not buying BMW’s and make Key pay for his own ticket when he goes to the Royal Wedding? Maybe if we did more thoughtful things like that kid’s on welfare can maybe afford a meal instead of having the food taken out of thier mouths?

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  90. Confrontation at Paula Bennet’s Office:

    http://www.indymedia.org.nz/article/79418/confrontation-paula-bennets-office

    Today members of Auckland Action Against Poverty and their allies marched and attempted to occupy the office of Paula Bennet, head of the Ministry of Social Development. Initially, about 15 activists occupied the lobby while two protesters climbed onto the roof and dropped a banner that read; “If we canceled welfare….how many would starve to death? Bugger all” – John Key. The police were quick on the scene and pushed the initial occupiers back while the rest of the picket made its way from the local WINZ office around the corner.

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  91. A single 20 – 24 year old unemployed person gets $161.76 Per week to live on.

    The initial development of social welfare was meant to allow the unemployed to participate in society.

    Weekly food = $60
    Average board = $100
    Bills = $25 pw

    This basic budget has a shortfall of $23.24 per week or $1208.48 per year. Apart from shopping once a week, there is no allowance for participating in society or going to the doctor or buying condoms or fixing the car or getting a wof or emergency funds or petrol or clothes or etc.

    So photonz1, where are the savings to be made?

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