Russel Norman
Creating debt to justify privatisation

The National Government has consistently used the argument of government debt and the budget deficit as the primary reason for partially privatising our state-owned energy companies: Genesis, Mighty River Power, Meridian, and Solid Energy.

Yet the debt and deficit have been made much worse as a result of the decisions of this Government.

Our debt situation has worsened considerably since National became Government. Partly this was due to factors beyond the Government’s control: the global financial crisis and the Canterbury earthquakes reduced revenue and increased costs.

But the Government’s own policies have made the deficit worse.

On the revenue side, as the Inland Revenue Department (IRD) recently pointed out, Government tax policy measures have accounted for a much greater proportion of falling tax revenues than the global financial crisis.

As part of its Briefing to the Incoming Minister, IRD disclosed that tax revenue as a percentage of GDP has fallen significantly – from 35 to 31 percent of GDP – and is now below the OECD average. Of this 4 percent decline, 2.5 percent is “attributable to the cumulative effect of tax policy measures undertaken by successive Governments since 2008”. Part of this was Labour’s expensive tax cuts and part of it was Nationals’.

IRD get even more specific in their recent financial review when they state: “In the short term, particularly 2010–11, the [Budget 2010 tax] package is revenue-negative because some of the revenue-positive aspects of the package take time to transition in.” The Government said its so-called ‘tax switch’ was ‘broadly fiscally neutral’, but it was no such thing; it was a tax switcheroo that threw the Government books into a further $2 billion deficit.

Beyond the revenue-negative actions of the Government, there were the revenue-positive things they failed to do. The Government decided to turn down the Green Party’s proposed temporary levy to help pay for the rebuilding of Christchurch. That’s an additional $1 billion of lost income per year.

A comprehensive tax on capital gains (excluding the family home) would also have helped raise additional revenues while helping to shift the economy onto a more productive footing. A CGT would take maybe a decade to come fully on stream, but the Tax Working Group estimated that once it did, it would raise $4.5 billion per year. A charge on commercial water use would raise $500m per year.

All these elements make the one-off gain of $5 billion from privatising state-owned assets look like pretty small bikkies.

Then on the expenditure side, the Government is spending like a drunken sailor on new motorways (without positive economic benefits) to the order of $2 billion per year, and on-going subsidies of carbon polluters of around $1.2 billion this year.

On both the revenue side and the expenditure side National has created their own deficit and debt problem. And then they are using the deficit and the debt that they created in order to justify privatisation.
Russel

P.S. To make your own submission on the Government’s legislation to partially privatise the last of our best state-owned assets, click here.

49 thoughts on “Creating debt to justify privatisation

  1. And this fantastic golden goose earns us what, maybe 10% of government income? No?

    5% of govt income? No

    2% of govt income? No

    How about 1% of govt income? Nope.

    On average our energy assets return the govt $400m per year in dividends.

    That’s just 0.6% of govt income.

    And if half is sold, the govt will still get half of that 0.6%,(0.3%) and a third tax (0.1%) on the other half.

    So the overall loss of income will be around 0.2% of govt income, offset by gains of slightly more than that from less debt.

    Even the likes of Cntact energy which is completely privatre, still pays 100% of paye to teh govt, 100% of gst to the govt, and a third of thier profits to the govt in tax – and the govt doesn’t have to own a single dollar of it.

    Like or Dislike: Thumb up 4 Thumb down 13 (-9)

  2. Kerry says “Photo. Is there a Neo-Liberal Government fuckup you do not support?”

    If you find something that is an f-up, let me know. Unlike you, I’m quite happy judge a political party on ideas, rather than who they are. I’ll be be highly critical of National if they do something stupid, and have been in the past.

    The Shipley National govt was probably the worst we’ve had in 20 years. I’ve been very supportive of the last Labour govt for the first two terms, and anti for the third when they lost the plot.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  3. Wasn’t Air NZ an example of a pretty big screw up once it was privatised? (Genuine question – my memories are pretty vague, being a teenager at the time and all)

    The other concerns with power companies specifically is that they are infrastructural, and the profit motive can often produce inefficient and undesirable results for the wider citizenry (higher energy prices have been quoted as an example, although it’d be good to see some concrete research on this). As John Key recently realised, the same goes for privatising ACC – it’s not actually always better/cheaper for business to own/run things.

    By the way the links to the parliament website are giving me a server error.

    Like or Dislike: Thumb up 7 Thumb down 1 (+6)

  4. Respected economists unlike natioanl party trolls like photonz1 have already stated that selling our assets is bad economic management.

    Selling the assets that ALL New Zealanders own will work out very well FOR THE RICH.

    The asset sales are all about paybacks and pay offs to the natioanl partys rich business friends and backers ………

    I’d be interested to know how much money and resources gets spent/wasted on National party hacks and trolls such as photonz1 ??????????

    Someones in the Natianal govt is feeding these monkeys …

    Care to be honest with us Photonz1 ??????????

    Who supplies you with the Government spin that you faithfully regurgitate ??

    And who foots the bill ??????

    Like or Dislike: Thumb up 8 Thumb down 5 (+3)

  5. nznative – care to provide a link to your claim about the respected economists?

    Trevor – resisting the temptation to question whether “respected economists” is an oxymoron – but not succeeding :)

    Like or Dislike: Thumb up 3 Thumb down 0 (+3)

  6. nznative says “I’d be interested to know how much money and resources gets spent/wasted on National party hacks and trolls such as photonz1 ??????????”

    yeah nznative, I get paid millions….

    …meanwhile, back on planet earth….

    Like or Dislike: Thumb up 1 Thumb down 0 (+1)

  7. Russel is only telling half the story (but he’s not alone in this, see my next missive too).

    When Russel says

    [quote] [blah]… it would raise $4.5 billion per year. A charge on commercial water use would raise $500m per year.[/quote]

    See that – it would “raise

    “Raise”ing is a bare faced lie. There is no “raised”. There is “taken”, and there is “more taken”.

    As I keep mentioning, and Russel keeps ignoring and continuing to (being polite) mis-state, the only sustainable way to have a increase the funds available to the government is to increase the GDP from where the tax is taken. No other approach is sustainable.

    If you increase GDP, then there is more money to spend on things that need money spending on them.

    To restate Julie Anne – It’s the GDP, stupid.

    As PhotoNZ keeps accusing the Green Party of, all they have is take, take, take. Greens Party – you need to be more creative, and actually address the issues at hand, rather than parroting old school socialism.

    We can’t have aspirations of a great first world country without the GDP to support those aspirations.

    Like or Dislike: Thumb up 2 Thumb down 4 (-2)

  8. PhotoNZ is playing the same trick as well.

    I’m going to buy his analysis of where utility income fits into the government scheme of things as it seems reasonable. However, it ignores two importasnt facets.

    The first is where does the money come from that the government collects its cut on currently, and where in a privatised world the shareholder dividend will come from? Yep, its the consumer (Stupid!), and thus it is inevitable that electricity prices will rise faster than they do today. Inevitable, because there is more money coming out of what the consumer pays, and the real cost of generation won’t suddenly drop.

    The second point is where the dividends money goes. If one has the money to invest in electricity company shares when they are offered, then one will receive a dividend.

    So if one gets into shares, then one has ones increased electricity bill offset by one’s dividend income. Which is nice.

    If one doesn’t then one gets all the costs but none of the benfits. Strip away the terminology, and you have one group of New Zealanders handing over money to another group of New Zealanders (and this is the important bit so I’ll bold it) for nothing. No-one gets “better” electricity, or cheaper electricity,

    So some animals have a world more equal than others. Sound familiar?

    Like or Dislike: Thumb up 6 Thumb down 1 (+5)

  9. National Party fuckups.

    Asset sales. The last lot cost us 14 billion + a year.
    NACT standards. Repeating policies even the USA is abandoning, because they have failed. And stuffing up the introduction of the new curriculum, evidence based change, by changing the focus to NACT standards half way through.
    Response to AGW. Where is it again?
    Road building, instead of rail and shipping, when energy costs will soon make them largely redundant.
    Tax cuts, when the deficit was already too large.
    Allowing more profits to go offshore. Instead of tax and other means to keep investment here.
    Increasing dividends from SOE’s so the private sector can compete and take our money offshore. Both NACT and Labour.
    Wage cutting.
    Ignoring the need for sustainable energy.
    Supporting POAL in wasting Aucklander’s money when they could have got the same efficiencies just by being pleasant to their workforce.
    Amalgamating Government departments without any idea if it will have any savings.
    Beneficiary bashing to cover their own incompetence in managing an economy. The type of dog whistling to the worst in society a certain Austrian was famous for.

    Just of the top of my head.
    And Labour was not really much better.

    Like or Dislike: Thumb up 10 Thumb down 4 (+6)

  10. [lots of stuff not quoted] … And Labour was not really much better.

    And thereby hangs the problem.

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  11. Hidden due to low comment rating. Click here to see.

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  12. And you’ve given me a list of good things – I thought you were supposed to come up with bad things.

    Wage cutting is a good thing, eh photonz1?
    I guess it’s good for some.
    Sorry to cherry pick but while I agree with some of your sentiments (particularly the silliness of Godwinning) and specious nature of some of the ‘bad things’, it’s equally absurd to position that the list of ‘bad things’ are in fact ‘good things’.

    However if you look at the inflation adjusted price the govt got for the likes of Contact Energy, it seems like they came out very well compared to what the company is worth now.

    This is the worst kind of sophisty. Shitty executive / board management is why Contact is where it is now resulting in the nominal speculative ‘value’ of the company based on share price – totally divorced in fact from their actual ‘value’ as a utility.

    Like or Dislike: Thumb up 4 Thumb down 2 (+2)

  13. First you slam the governments policy because in its first year its revenue negative as the positive elements may take some time to come into effect, then you suggest a CGT that ‘would take maybe a decade to come fully on stream’.

    Just like any other politician, you bend, stretch and fuzz figures to make your ideas sound good, when in fact they are just as rubbish if not more so than your opposition. As usual the dribble that leaks from your mouth is based on the assumption that your constituents are brain dead. Sadly, when it comes to Greens supporters most of them probably are.

    Until I read this article I was against partial asset sales, now if anything, you have actually convinced me that they are a good idea. Of course another benefit to supporting assets sales would be to ensure people dont mistakenly think that I am stupid enough to fall for your PC gibberish bull either.

    Like or Dislike: Thumb up 1 Thumb down 7 (-6)

  14. I just thought I’d add a more general comment as well (having got my rant out in the previous comment).

    The greens approach to governance seems to be on the basis of:
    Create a tax or levy for every conceivable thing we can think of. Then give away as much money to the poor and non-contributing members of society as possible (while planting a tree or 2 on the way).

    They fail to see that taxation strangles economies, especially things like the Emissions Trading Scheme. The greens are determined to make Farming and Manufactoring (i.e. the 2 industries that keep NZ out of the 3rd world) impossible.

    So with the greens, while we may have a greener future, it will be accompanied with deprevation, famine, suffering, crime and anarchism (and lots of trees).

    Like or Dislike: Thumb up 2 Thumb down 8 (-6)

  15. The Laffer curve pokes up its ugly head again.

    The highest net taxed countries are the most prosperous, and the most desirable to live in, so the claim that taxation strangles economies is obviously a nonsense. http://stats.oecd.org/

    Taxation removes excess wealth from those who waste it, on derivative gambling, hoarding and Hawaii holidays, and re-invests it within the local economy.

    No economy has succeeded without a healthy State infrastructure.

    Like or Dislike: Thumb up 10 Thumb down 2 (+8)

  16. The Key party is only intent on looking after the top 50.1% (to keep them in power) Its seems clear to most that all the tax breaks & other financial benefits from this Govt. are stacked that way.

    The people who think that selling state assets & redirecting that profit into the hands of the wealthest (here or overseas) is somehow going to benefit all kiwis, need to either open their eyes, ears & minds or admit that they intend to buy into these assets !

    Someone once said ” If the richest were not so greedy, the rest of us would be a bit better off ” But I tend to think the Nats dont want to see that.

    Kia-ora Greens

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  17. Question for Kerry

    The highest net taxed countries are the most prosperous, and the most desirable to live in…

    Group A: Chile, Belgium, Sweden, Mexico, Denmark, France, Slovakia, Slovenia, Portugal, Czech Republic, Italy, Poland, Turkey, Estonia, Hungary, Korea.

    Group B: Luxembourg, United States, Australia, Switzerland, Ireland, Japan, Canada, Norway, Iceland, Netherlands, United Kingdom, Germany, Spain, Israel, Austria, Finland

    Which group would you rather new Zealand were in? Which group would you rather live in?

    Like or Dislike: Thumb up 4 Thumb down 1 (+3)

  18. Kerry, I noticed you didn’t answer my question.

    Ranking the total tax revenue per capita is particularly interesting

    Why is that then?

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  19. Have a look.

    Does answer your question.

    Unless you would rather live in Mexico.

    This is just the OECD countries. It is even more marked if you add non OECD countries.

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  20. I still don’t know what your preference is.

    As you have probably noticed, the countries are grouped by GDP per capita to average taxation rate, which is the measure you suggested. Group A are those that have a ratio of more tax than NZ, and group B lower tax.

    You are suggesting that group A is the more desirable group of countries to live in.

    I disagree.

    Tax is not a good thing. However, tax is a necessary evil. Tax (like government) should be as small as reasonably possible. In particular, the rate should be as low as possible. Why? Its nothing to do with laffer curves and stuff like that; its simply a question of fairness. Someone who aquires wealth by some method should not have to give said wealth away to others any more than is absolutely necessary. I know some left wingers dont agree with that position, particularly as you get further left. I am fully supportive of a welfare state, which is the core thing tax supports, but there needs to be a balance, and that balance is, as you note, individual wealth versus tax rates.

    My counter-argument to Laffer and to pro-tax folk is that more taxation isn’t sustainable, by a very simple argument. If taxation is good, then more taxation must be better, right? So lets raise the tax rate every year. It must be the right thing to do, yes? Pretty soon, taxation exceeds 100%.

    The right answer is not to have a zero sum game in which everyone is a loser to a greater or lesser extent, but to increase the size of the pot.

    Data Sources – tax from OECD, GDP per capita from CIA world factbook, for the most recent years that data was available per country.

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  21. The problem dbuckley, is that if you have free market capitalism and a debt based currency, you HAVE to have a strongly progressive tax system to counter the wealth concentrating tendency of the first two. This IS a good thing as it maintains something resembling equal opportunity in the country IF it is applied correctly.

    In short, your premise is incorrect. Tax in the free market capitalist debt based currency environment, is not merely a “pay for minimal government” issue. There IS a sweet spot in the GINI which seems to yield pretty decent society, and between 25 and 31 one finds almost all those places where humans manage to enjoy living despite their relative wealth or poverty. You cannot reach it without using taxation to transfer wealth back down the ladder.

    Nor is your argument sensible. “If some is good more is better” is fallacious in the real world and has always been so. You can apply it to ANYTHING in the real world and find that it fails, as Midas found to his chagrin. You don’t usually make such arguments. I am sort of surprised.

    To “increase the size of the pot” in general entails increasing CONSUMPTION somewhere, not just increasing production.

    The cost to the future is unconscionable and given that the production we already HAVE is unsustainable and the cost to other nations is resisted by them.

    I have to conclude that that struggle is not one we should be engaging in.

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  22. Kerry

    That OECD chart is far too simplistic as it fails to take into account the ratio between the individual countries tradeable versus non tradeable sectors.

    GDP measures the gross tradeable sector. Tax taken from that tradeable sector supports the non tradeable sector.

    The higher the required tax take from the GPD (NZL is 31%) signifies a economy with a large non tradeable sector.

    For if the non tradeable sector was small, the GDP would be high and the tax required to maintain the state would be less.

    As dbuckley says, higher taxation is not sustainable. The answer is to grow the GDP.

    You cannot grow GDP by continued high taxation of the tradeable sector. You need to reduce the non tradeable sector to relieve the burdon on the tax paying tradeable sector..

    But heaven forbid that the non tradeable sector be asked to make sacrifices. Much easier to increase taxation on the tradeable sector.

    That is, until the tradeable sector collapses. Then you will have nothing and capitalism and individualism can reign free.

    Taxation removes excess wealth from those who waste it, on derivative gambling, hoarding and Hawaii holidays, and re-invests it within the local economy.

    Sour grapes or a chip on the shoulder? Quantify “excess wealth” if you can.

    Jeez the state is trying to get investment up in NZL by selling assets, yet the Greens are dead cert against.

    So where would you invest? No company in NZL is worth investing in. Every KiwiSaver provider, the Cullen fund and ACC has the majority of investments overseas.

    Cant invest into mining, dont want a tourist improving privately funded road tunnels, windfarms are a waste of space, tidal flow electricity generation requires a three year iwi study to count dead fish, cant invest in fishing, kills dolphins.

    Cant invest in dairy, too dirty. Forestry? Carbon credit market is shot (never was alive mind you). Timber prices are to low for an investment that gathers no income for 50 years (tax breaks are gone from that industry).

    Cant invest into rail as the state controls access to the steel road and wont let private investment ride the rails.

    Taxation kills SME businesses (why cant we have a PAYE system for business, said sitting here writing out a considerable sizes cheque for this years terminal tax). Why does business have to pay provisional tax on unearned income?

    Investment in NZL business at current taxtion regimes or return on investment is not attractive. Better of shipping the money to places like Vietnam. Where the NZL wealthy are being smart with their “excess wealth”.

    Nothing wrong with Hawaian holidays, very affordable with the NZL to US dollar at 84c. Big wave time in Hawai at present, worth a visit for that alone. Cheaper then a NZL holiday! Where a drive from Auckland to CHCH and back costs as much as the airfares to Hawai alone.

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  23. As dbuckley says, higher taxation is not sustainable. The answer is to grow the GDP.

    And that is not allowed either, as it cannot be done without killing our children.

    Which makes it a zero sum game Gerrit. As long as we are on a finite planet it will remain a zero sum game and as a society we are already over the limits.

    That may be “simplistic” but it is part of the reason why no amount of “reasoning” about the GDP and Taxes and “increasing the size of the pie” will move us. Those answers kill children, and not taxing sufficiently causes mal-distribution of the wealth we DO enjoy.

    ” heaven forbid that the non tradeable sector be asked to make sacrifices.”

    Considering that the GST was raised and the public sector is being cut and underpaid while the minimum wage is squashed and the top tax rates are depressed and there is no Capital Gains Tax… and the GINI is over 36 and rising, I do NOT think that this is going all in the one direction you are asserting.

    It is going in the opposite direction.

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  24. Gerrit. That is as fallacious. The idea that State tax supported jobs do not contribute to GDP is wrong. Does a school, or a power company, suddenly change from non-tradable (Bad?) to tradable (Good?) when it becomes private.

    If you were right then pre-capitalist Russia would not have functioned at all.

    The table gives tax a GDP in absolute terms per capita. A better measure, i think, than percentages. I prefer the GINI index, but that usually parallels GDP in most Western countries.

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  25. And why should a few people be able to accumulate ever greater unearned wealth on the backs of the rest of us simply because they had wealth already.

    Note: I have never questioned that productive entrepreneurs and others who advance society do not deserve wealth. As Bill Gates says though his children are not entitled to sit back and do nothing on the strength of his earnings.

    Nor do I think managers and financial jugglers who have never started a useful business, and often have no capability beyound cost cutting, or gambling, deserve 17% pay rises while everyone else has pay cuts.

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  26. BJ,

    Why dont the Greens discuss the preferred population control methods available for this finitely resourced planet. Seeing the one resource available to save the planet is out of control?

    For without population control it we are killing our kids even quicker and no amount of resource minimisation will prevent the collapse of the current system and the return of the remaining population to Maslows lowest rung heirachy. The rung where the least thought goes towards resource saving and environmental concerns.

    Kerry

    If you were right then pre-capitalist Russia would not have functioned at all.

    It functioned? Yeah right.

    If the GINI is so good in a socialist state how come Venezuela is at 41?

    Neither socialism nor capitalism work (not that communist Russia was true socialism nor the USA true capitalism) judging by the GINI index.

    It is interesting to look at the R/P 10% and R/P 20% ratios for NZL.

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

    We dont actually have many “rich pricks” here. Your scorn is misdirected.

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  27. If the GINI is so good in a socialist state how come Venezuela is at 41?

    Part of the issue is that neither pure socialism nor pure capitalism work for us. Some mixture is required. The places that get that balance correct are the places we like to live.

    Venezuela is a special “basket” case because of its oil, the drug trade and its history. I actually visited there once long ago, before they went socialist. At the time they were not at all socialist, and there was a cordon of guards with machine guns between the luxury hotels and playgrounds of the wealthy class, and the hills covered with cardboard hovels.

    Their “revolution” was not so long ago.

    As for our “number of rich pricks” here, the point is not even that we can make things better for a lot of people by taxing the wealthy more effectively. I doubt that there is enough money at the top to make a really big difference to the rest.

    The point is that JUSTICE and FAIRNESS are a big part of the social contract, and the lower classes seeing the dishonesty and injustice promoted, feel no particular need to maintain their own adherence to the rule of law or ethical behaviour.

    The society is damaged in a long term and irresistible way.

    As for what we discuss? Usually it is what is important to the public at the moment. Population control is not often on the radar here. It’d be a good idea if we New Zealanders worked on that issue as well, made it into a national policy, but it is so far off the radar at present that it doesn’t even register as noise.

    ciao
    BJ

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  28. Gerrit. Socialist States were doing rather well last time I looked, at least until some of them started buying into neo-liberalism also.

    Look up Norway and Belgium.

    And historically The USA (When they had 91% tax on millionaires was the most prosperous time for the USA) and NZ before the 70′s.

    The more we embrace Neo-liberal bullshit the further we decline. Funny that!

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  29. How much of the problems in Venezuala are caused by nationalising companies, and how much are caused by the USA punishing them for throwing out their corporates, including financing raids from Columbia.

    Certainely most Venezualians were worse off before Chavez.

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  30. Lets start with BJ – In the long run, the planet and everyone on it is dead. We know this. In less time than the planet gets vaporised, mankind will be gone. Well before that we will have to grapple with the conjoined problems of lack of resources and excessive population.

    We know through experience that nothing substantive will change until it has too, and yes, by then it may be too late. Those who claim to be interested in the environment are like doctors; any decent doctor knows that the best he can ever hope to do is prolong life a bit.

    In that context, the way the world works (including New Zealand) isn’t going to change radically. The structures that govern our lives are all there.

    Does this mean we are powerless? No, just the scope and rate of change is limited.

    In this context we can improve New Zealand’s lot. We can achieve an improvement in our contry’s financial in the global context. Our standard of living has been declining for half a century. If it can change for the worse, then logically, it should also be able to change for the better.

    Theres a lot of folk in here in favour of more taxation. Using taxation to redistribute wealth more evenly will not improve the country’s standard of living, though obviously there will be winners and losers. Taxation is not an alternative to more GDP as it fails to actually deliver anything “more”.

    Increase the country’s wealth and then everyone is a winner. We know this. Kerry even quotes it in his hint about “NZ before the 70′s”.

    As BJ notes, taxing more at the top end wont make a significant difference anyway unless tax is so high that people simply leave. Kerry keeps mentioning America’s once very high tax rate and no-one left, but that is America; when you are at the top of the tree where else is there to go? Certainly the Beatles and the Rolling Stones didn’t hang around when the UK tried the same thing, and George Harrison even wrote a song about it (Taxman on the Revolver album)

    The bottom line is this: Socialists want to redistribute wealth to somehow achieve an illusion of a “fairer” society. I want everyone’s lot to improve.

    You cannot reach it without using taxation to transfer wealth back down the ladder.

    That is the worst possible reason I have ever heard to support taxation. That would be an outrageous abuse of power.

    Taxation exists to enable an appointed agency (the state) to do stuff for the common good of the people that would otherwise be impracticable to fund. It is true that most states feature several sorts of welfare “safety nets” so that when people fall on hard times they can be continue to be members of society and not be thrown into a poorhouse.

    It is true that most countries that one would like to live in have taxation schemes that are within a range, but we are the top edge of that range.

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  31. has to not has too – arrrrgggh!!!

    Sorry – that was like a whack between the eyes

    “In the long run, the planet and everyone on it is dead.”

    The planet? Yes… everyone here today yes – but not necessarily their descendants. I don’t reckon it hopeless. I don’t think there is any reason our descendants can’t outlive this planet, all we have to do is work out how to live within our means long enough to work out how to live and work without a planet under our feet.

    Not all that impossible… nor even particularly unlikely.

    That wasn’t your main point… it was a sort-of excuse for your main point but your MAIN point is that we should be trying to grow our GDP.

    As everyone else tries to grow their GDP. You reject the notion that the world can change radically… even as you happily accept that we can all die. In order to diminish the importance of living sustainably?

    Seems to me that before we all die radical changes WILL happen…. possibly too late, and possibly not.

    Our standard of living has been declining for half a century. If it can change for the worse, then logically, it should also be able to change for the better.

    There is no such logical requirement. There is a law of entropy, but no logical reason why things have to be able to improve and certainly there is NO way to improve them using current financial and business models.

    You have basically said that these won’t change. I am asserting that they must if you want improvement. I accept that we CAN change for the better… but only by NOT following the prescriptions of the businessmen and bankers who run things now.

    “As BJ notes, taxing more at the top end wont make a significant difference anyway” – but I said nothing about people leaving.

    They are already leaving, while we have one of the lower tax rates in the OECD.

    There is scant work for them here and better money for their skills elsewhere. Of course, I am talking about the people who actually produce stuff, the wealthy here are comfortable where they are.

    You cannot reach it without using taxation to transfer wealth back down the ladder.

    That is the worst possible reason I have ever heard to support taxation. That would be an outrageous abuse of power.

    If it were a direct transfer from the wealthy to the poor, enabling them to buy beer and go crazy I reckon you might have a point. If it is a transfer from the wealthy to programs that (for instance) equalize educational opportunities or pay for medicine, then I think you have none. The need to pay taxes equivalent to our expenses (income == outgo) (gozintas == gozoutas) isn’t being met NOW.

    Instead we cut taxes in ways that benefit the wealthiest most, add to our GST , and borrow from future generations…. who will choose to leave rather than pay.

    If you want to see real revolution in NZ, not just an OWS demonstration, just keep up the good work. If the tax code is not perceived as being “fair” by the people who actually produce stuff, as opposed to the one-percenters who OWN everything, then it needs to change. THAT is what I am talking about, and the adjustment to the taxes that would get the GINI to drop probably isn’t enough to drive people away. The non-productive wealthy can leave any time. I do not think I will miss them.

    Taxation exists to enable an appointed agency (the state) to do stuff for the common good of the people that would otherwise be impracticable to fund.

    Yup, that’s the general case for it, expressed by Smith and Lincoln among others. The special case of a free market democracy with a debt-backed currency however, makes the process of CONCENTRATING wealth automatic. This situation can only be reversed by MORE of the taxation being born by the folks who benefit from the combination… the one-percenters.

    but we are the top edge of that range.

    This is an astonishing assertion.

    Sweden has a top rate of 57% and managed to balance its tax rates and benefit clawbacks to make the structure monotonically increasing (if I recall this correctly).

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

    http://en.wikipedia.org/wiki/Taxation_in_Germany#Income_tax_rate_in_2010

    Someplace along the line I lost track of anyplace I’d really LIKE to live that actually has really LOW taxes. Monaco perhaps… but I try to restrict myself to analysis of the real world.

    We run at the bottom of the pack. Wealthy people HERE are better off than they are almost anywhere else on the planet.

    I see no reason why my kids have to pay for that to remain true. No reason for it to remain true, full stop. Taxes here are actually QUITE low. Things are expensive, and wages suck, but taxes are low for the well to do, even the ones who actually pay all their taxes and don’t scheme to get out of some.

    The economic problem NZ has is that it has accepted the neo-liberal dogma of comparative advantage and failed to accept the limits on it.

    It has accepted the idiocy of debt backed fractional-reserve money without comprehending the actual nature of money.

    It has accepted being a farm… but has aspirations of having high-value labor.

    All in all it seems pretty dumb, delusional and disappointing.

    Fixing it entails a lot of changes, adding some taxes won’t fix everything, just make it easier. GDP doesn’t measure anything useful if it takes no account of the trade imbalances or the costs to the country.

    It is a poor measure of wealth that only counts MONEY.

    BJ

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  32. I think one of the silliest things with this whole endeavor is also the timing of it:

    1. Interest rates are very low, so the income vs interest on debt savings is non-existant.

    2. Some assets (like AirNZ) have just performed poorly and are undervalued atmo.

    Even if Mr Key said: “Folks the plan is: Sell these coal/fossil powerplants since we want to phase them out soon and use the proceeds to invest in or subsidise clean power gen tech.” It would still be poor timing.

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  33. The Govt could save well over 1 Billion per year, EVERY year by properly addressing and taxing the drug alcohol, AND the country would be a much better, safer and healthier place.

    Donations and perks from the booze pushers to our national govt seems to be working very well at protecting the makers of our number one drug…… and it costs the country billions and thats not counting things like abused children.

    And I didn’t think our National party troll photonz1 would or could be honest to my question about his links with the National party.

    The question was …”“I’d be interested to know how much money and resources gets spent/wasted on National party hacks and trolls such as photonz1 ??????????”

    It cant be millions in Photo’s case because he’s so obvious and obnoxious that his value is near zero.

    But it would be interesting to know how much is wasted on these monkeys and who is paying for it …………

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  34. BJ:

    Sweden has a top rate of 57% and managed to balance its tax rates and benefit clawbacks to make the structure monotonically increasing (if I recall this correctly).

    Sweeden’s tax take is (as a percentage of GDP) 46.2% higher than ours. Their GDP per capita is 45.5% higher than ours. How weird, those numbers are almost identical. Could that be a coincidence? Coincidence is awfully hard to engineer

    If we were to fix our low GDP we could be in the same position as Sweeden.

    Lack of GDP is the problem. The problem. The only problem in town.

    Gosh, those deckchairs are really haphazardly strewn about the place. Perhaps we should tidy them up. Yes, that’s what we’ll do. And whilst we’re at it, perhaps we better call on Nero, we could do with some music.

    More seriously: I know infinite growth is impossible, either as a rate or as a time, as we live on a finite planet and there are laws (like those pesky thermodynamic things) that make our lives difficult. But what I’m not willing to accept is that every other country can figure it out and improve the lot of their citizens whilst we can’t. We either have to be the stupidest country on the planet, or perhaps the brightest, but it doesn’t actually matter, because either way, the result is the same, we continue to go down, year after year.

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  35. dbuckley says “thus it is inevitable that electricity prices will rise faster than they do today. ”

    Not inevitable. They’ve risen much faster than inflation under govt control, with another big leap about to hit.

    But when telecom was privatised phone prices plummeted.

    So nothing is inevitable. What is likely is that power prices will go up relative to how much demand goes up.

    Companies with the highest prices are currently losing customers, however none of the power companies have high margins so prices can’t be reduced by much.

    For the first time (ever?) we used LESS power last year than the year before, so there is not a lot of extra demand currently – normally we need 2.5% more each year.

    So it is not inevitable that prices will rise even faster than the high increases we’ve seen under govt control.

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  36. Electricity demand is dependent on the weather, so a variation of a couple of percent may not mean too much. In addition, there are a lot of business in Christchurch not drawing power at the moment.

    Longer term, electricity demand is also affected by fuel choices for cooking, heating and water heating. Many new houses automatically opt for gas (LPG or CNG) for their hob and water heating and add a gas fire. However LPG prices are tied to international fossil fuel prices as we often need to import it. CNG (methane) prices are harder to forecast but sooner or later will go up when we have a shortage. Electricity demand will go up when these other fuel prices go up, unless the electricity prices have already increased as much. Of course when that happens, renewable generation will start looking more attractive.

    Trevor.

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  37. Yes, it is inevitable that prices will rise more quickly.

    Margins on power will increase – as you understand very well from a market perspective it is all about return on investment, and shareholders will require decent returns. If your business was required by its owners to produce more returns on investment then your prices would go up. That might cause you to lose customers and go out of business, becasue not everyone needs your creative services. But everyone needs electricity.

    If one company gets more expensive, the others won’t compete to drive them out of the marketplace, which is what should happen; they’ll raise their prices to increase their margins too.

    It is important to remember that prior to the market reforms, New Zealand had one of the most efficient electricity supply industries in the world,though it certainly wasn’t the most effective. Market reforms did away with that efficiency. We are now “typical” in terms of efficiency.

    Comparing naturally monopolistic utilities (power, gas, water) with telecomms (which can be competitive) is not valid.

    Telecomms can be competitive, but often isn’t for local copper connections, and “adjustments” have to be made by the regulators. The most competitive country for telecomms is Somalia, where pretty much all phone service is mobiles, and there are no fewer than five competing mobile networks. There is no government regulation or government fees charged to the cellphone providers. Thus Somalia has the cheapest cellphone rates globally.

    On the other hand, the most profitable telecomms companies are in New Zealand, because ur telecomms companies choose not to act very competitively, but rather to all get fat together.

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  38. Comparing naturally monopolistic utilities (power, gas, water) with telecomms (which can be competitive) is not valid.

    Not quite. Like power, gas etc. the transport or network layer of the telco industry is naturally monopolistic; essentially, the cost of access.

    The service proposition however, is not. This is because you can offer multiple products across a telco network but only one product across a power network.

    Comparing mobile to fixed line is to a degree, apples with oranges. There is absolutely a segment of the market that overlaps from a substitution perspective, but secure access (i.e. for banking) and data aggregation still requires some form of fixed network infrastructure.

    Wrt no govt regulation + fees, I would respectfully suggest that this has transpired as a result of their being no effective state apparatus capable of levying tax or mandating telco standards, rather than it being a shining example of rational economic liberalism.

    As a side note what fixed infrastructure existed was effectively destroyed during their protracted civil war / blow up with Eritrea so the barriers to entry for mobile services did not exist.

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  39. Not quite. Like power, gas etc. the transport or network layer of the telco industry is naturally monopolistic; essentially, the cost of access.

    Not necessarily so Gregor; there is nothing stopping anyone laying an alternative infrastructure in the ground, and (outside of almost all of New Zealand) in plenty of places, alterntative telecoms wired infrastructure has been installed. I’ve yet to see an alternative elkectrical or water or gas distribution system, becasue, as you note, there is only one product, so it makes little sense.

    Wrt no govt regulation + fees, I would respectfully suggest that this has transpired as a result of their being no effective state apparatus capable of levying tax or mandating telco standards, rather than it being a shining example of rational economic liberalism.

    Call the Somalian situation what you like. Ignoring the fees issue, the lack of governmental control with telco standards has not stopped multiple carriers being able to work together to deliver a highly competitive service, something that any other country that has telco regulation has failed to achieve. In particular, we’ve failed terribly.

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  40. Aside from the fact that the National govt intends to sell what we ALL OWN into the hands of a few ALREADY WEALTHY is the prickly issue of supply and demand and how it relates to electricity .

    ENRON screwed BILLIONS out of usa electricity consumers by manipulating the market. It is in the interests of the ( private ) power companys to restrict supply of electricity to push up prices which then offers windfall profits …..

    Cheap power is not what private power companys want ………….

    And personally I dont want John Keys or the Nats to sell what I own.

    Reverse the tax cuts on the rich instead …………

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  41. Somalia is of course the Neo-Liberals ideal. No taxes. No Government. The Government has not only been drowned in a bath tub, it is almost entirely ineffectual. No business regulation. You pay for that to only if you want it.

    If you want schooling, roads, telecoms, rail, ports, police, army you pay for it yourself.

    Exactly what NACT wish for New Zealand. I only wish they would recognise their ideal country already exists and go there. Instead of fucking up ours!

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  42. @dbuckley

    Not necessarily so Gregor; there is nothing stopping anyone laying an alternative infrastructure in the ground, and (outside of almost all of New Zealand) in plenty of places, alterntative telecoms wired infrastructure has been installed. I’ve yet to see an alternative elkectrical or water or gas distribution system, becasue, as you note, there is only one product, so it makes little sense.

    There are in fact several barriers. Primarily the barrier is profitability.

    It’s incredibly expensive to deploy fixed infrastructure (which is why it’s mostly deployed courtesy of the taxpayer worldwide) and the RoR is low and very long term.
    In NZ, another barrier is the RMA.
    But I get your point. There are alternatives – just not very good ones in terms of reliability, quality of service and bandwidth; so, in the sense that Asti Spumanti is an alternative to Champagne, yes!)

    Your assessment wrt to the overall competitiveness of the NZ telco market is also factually incorrect.

    The fixed line residential business in NZ is skewed principally because of what was formerly known as the Kiwishare (now known as the Telecom Service Obligation – basically government mandated free local calling). You are correct in suggesting that because of this statutory limitation, there is limited competition and consumer benefit, but it is certainly not across the board.

    For example:

    The fixed line commercial business is not affected by the TSO and is about 8% above OECD average in terms of cost (note its also about 40% cheaper than Australia).

    For entry level 10-20GB naked data (no voice) services it’s about 6% higher than the OECD average.

    In mobile, prepay is about 31% cheaper than the OECD average and on par with Aus.
    Post pay is the outlier with NZ being about 13% more expensive for the average non commercial user against the OECD average.

    Low use mobile data is about 25% cheaper than OECD average.

    (Discalimer: I work for Chorus)

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  43. There are in fact several barriers. Primarily the barrier is profitability.

    You may call it a barrier, but alternative fixed line telecomms happens. Primarily from the cable companies. Despite the cost of laying infrastructure, they do it, with no taxpayer assistance. Adding fibre and then telephone services has been a no brainer for them.

    Your assessment wrt to the overall competitiveness of the NZ telco market is also factually incorrect.

    I’ve no idea on OECD averages for costs, but I did compare recent telecom company profits divided by population by a few countries, France telecom won, but our Telecom (last years numbers, before the Chorus split-off) certainly lead the rest of the pack, leading AT&T and BT. So whatever they are doing, they are doing it very profitably.

    For entry level 10-20GB naked data (no voice) services it’s about 6% higher than the OECD average.

    Thats funny, because there are no civilised countries where you buy internet by the byte. In the UK a typical broadband package is 15-20 UKP per month, which is less than I pay Orcon, and their packages are faster and unlimited (with “fair use”, at least 100GB/month).

    I also had a look at comparable mobile charging, the Telecom 200 minute plan is $60, the nearest O2 plan I found was £21 with better phone subsidy and more texts.

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  44. I’m not sure what you mean by ‘internet by the byte’.
    If you suggest that no other countries offer n-dsl then you need to do your research more thoroughly.

    Also comparing us to UK specific plans is dumb. You need to compare across the market in an aggregate sense on a service by service basis, not cherry pick. Otherwise it’s just as valid to say UK telcos are rubbish compared to Korean ones on price and further, Korean ones are crap compared to….Somalia. Which is of course, absurd.

    You are also conveniently forgetting the UKs population and teledensity differences and also that it’s a short hop from Europe and thence, close to competing back haul operators.

    Apples with oranges really.

    Ps – Your cable example is spurious. There is only one cable operator in NZ for a reason. Cost to deploy and profitability. If it wasn’t so, wouldn’t the magic market deliver?

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