Island Life: The Prime Minister Has Spoken
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Paul, Fonterra is at least (mostly) held in check by the world price for its products. If they get too outrageous in what they're charging domestically, domestic purchasers will buy overseas. It's horribly inefficient to do so, but that's the way the market works. At least it's an option. In Tom's wet dream, Fonterra would not only be protected from foreign competition they'd also be encouraged to price significantly higher than their costs.
Disposing of Fonterra would be good for NZ in some ways, not so good in others. The removal of its distortionary market power as regards the cost of dairy products locally (though I'm still not convinced that it's Fonterra and not the retailers that're fucking us on that one) would be of significant benefit, but the costs associated with losing the unified marketing and manufacturing clout internationally probably outweigh, in the long term, the benefit to consumers. I imagine there're several economists' reports that examine exactly that.
What's particularly impressive about Fonterra is just how massive its international muscle is, despite only being the sixth-ranked dairy company in the world by turnover. When they're competing against the protected-to-the-hilt European and American producers, and winning so convincingly, I'm not so sure that we want to interfere. Letting subsidised producers have more influence over the world price is a recipe for pain, as witnessed by what EU/US subsidies for other products do to farmer incomes in the third world.
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The point I am making is all the inspirational leadership and great "new" ideas in the world will count for sweet fuck all if the other guy is better trained and better resourced. As they say in sport - the good big guy will always beat the good little guy.
And yet Microsoft, a company founded on a poker-player's version of the mere commonsense you mentioned earlier, its entire strategy based on leveraging existing dominance, lost vital markets in search (to Google) and consumer electronics and entertainment (to Apple).
Apple is my favourite leadership story. I covered a speech by Apple's second-last CEO -- and renowned safe pair of hands -- Gil Amelio. It was awful. He said "going forward" constantly. Apple was going down.
The next year, Amelio was talked into buying Next, Steve Jobs came back and forced him out and Apple was freakin' back again. The iMac. The iPod. The iPhone.
Jobs, I suspect, is a complete jerk to be around. But he and his products have had an extraordinary impact on my life.
And just to prove it's not a fluke: Pixar. Jobs buys an effects house and turns it into one of cinema's great storytellers. He saves his distributor, Disney, establishing such a powerful position that Disney buys Pixar, at his price, and appoints him to its board as its largest shareholder.
You could argue that the friction on inspiration is less in IT and media, but you cannot reasonably claim that inspiration plays no part in business success and innovation.
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And now to add some of my thoughts on the original post, rather than merely being outraged by Tom's desire to ship us back to the bad old days.
1) If this "world class tax system" is bereft of some incentive for R&D, we may as well give up now. So many aspects of Shon Key's speech are intertwined that they're hard to disentangle, but when many of its outcomes revolve around increased technological output we need to be encouraging R&D in a big way. Even the 15% credit that had been given was meagre by international comparison, and now we have National abolishing with one side of the caucus mouth at the same time as the other side says "More innovation, kthxbai".
2) Where's the money coming from for this increased output by academia? National abolished the annual funding increases that Labour were using to increase academics' salaries to try and keep them in the country. With that gone, we're going to see yet more flight by some of the very people on whom an innovation revolution will rely most heavily. High-level intellect is a global commodity, especially in technological fields. If we can't pay these people something approximating their global market worth, we're going to lose them.
3) Just coz the BRT bleats about how "hard" it is to do business in this country, that doesn't mean it's actually so. In fact the World Bank says that we're the second-easiest economy in the world in which to do business. In between Singapore and the United States. In that order. Yes, it's easier to do business in NZ than in the US, according to the World Bank. But, hey, what would they know? Our lowest ranking for any of the criteria they measure is 23. The United States'? 46. Where's Australia fall? Ninth, with a worst category ranking of 57.
So, what red tape can really be stricken? It's not that bloody hard to do business here. It really isn't. You can register a company and be in business within a week, if you're not in an industry that has specific regulation such as food handling. For a lightweight industry such as software development, the only thing that would hold you up beyond a week is waiting for IRD to send you the IRD number that you have to have in order to provide GST invoices. That's it. Hell, you can register a company and get a bank account in the same morning if you're particularly organised. Registering for GST or as an employer? Get it done online in minutes. For all the griping about how terrible IRD's service is, their website mostly does a good job of walking you through the steps required to get a business underway. -
Just out of interest Matthew, how much would the procedure outlined in thought 3 cost roughly?
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Just out of interest Matthew, how much would the procedure outlined in thought 3 cost roughly?
Well you can register a company for $50.00 and open a bank a/c ith $1.00 so technically $51.00.Of course your out lay is dependant on what you gonna do.
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I think the BRT are pretty much out of touch with the realities of doing business here and overseas - same with taxes (so much lower here than the US - and health care is thrown in for free).
Running a small business is really easy here - takes me 10 minutes every 2 months to manage GST (AND they send me a check) another 10 minutes a month to do withholding - and maybe 1/2 an hour a year to figure out what this year's magic spreadsheet formula to use for the rest of the year (for heavens sakes why don't the IRD publish that). Brilliantly simple!
Getting to that state from a position of ignorance is hard though - when I moved back I paid a lawyer and accountant a non-small amount of money to hold my hand through the process - when really MED or some such could easily provide the same information for free as part of information to help attract people home. Some independent analysis of the costs of various ways to move money in/out of the country for businesses of different sizes wouldn't go amiss either - I always feel I'm getting ripped off
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While an R&D credit is a great idea it's really only useful to those who are paying enough tax for a credit to be useful - most startup companies are not trying to make profits in their early years, instead they're pushing them back into growing the company .
I'm more interested in getting the tax system to reward long term capital investment - that means not playing the market to make a quick buck but putting money into the growth of companies over the long term.
Anywhere else this is called a "capital gains tax" it's a LOWER tax on long term capital gains (in the US it's ~25% compared with ~38% marginal) - our problem of course is that we don't tax capital gains at all so we can't reward the people who invest in the future over the people who watch too much house-porn on TV and want to make a quick buck flipping property
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Thanks Sofie.
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Sofie was almost right. The Companies Office increased the cost of registration outrageously last year and it's now $160 ($10 to reserve the name and $150 to actually carry out the registration). It was $60, at $10 and $50. But even at $160 it's still an absolute steal compared to many countries based on things I've read. Australia, for example, charges $400 for a registration. You can do it entirely online, too, if you have a scanner. Once you pay for the registration and enter the appropriate details you get emailed the PDF documents required for the directors and shareholders, already pre-filled and just awaiting signatures. You can email or return fax them (0800 number for the fax, too), and once all the forms have been returned you get emailed a PDF of the company's registration certificate. It really can be done in a morning.
As for the bank account, the last company I formed opened its bank account with no deposit at all. So it cost $160 (ignoring the cost of getting the trustee lawyer to sign things) to have a company fully registered. IRD charge nothing to get registered for any form of taxpayer status, and once you have the IRD number, which the Companies Office can apply for on your behalf as part of the registration, you can do it all online. There's no requirement for a constitution, and if you want to file one later there's no charge if you submit it electronically.
It's cheap, easy, and quick. Paul's right that doing the tax stuff can be a little daunting at first, but the IRD produce any number of guides on how to fill in all their forms. The guide to filling in an IR3 (personal return, and selected because I have one next to me), for example, has 68 pages of content. That's comprehensive. The guides for company and everything else are similarly thorough. Admittedly the first time you do a company return it's rather confusing, even with the guide, but be shown once and it's quite straightforward if you're a small business. Or pay the accountant a few hundy, which I should add is entirely deductible against the tax owed in the return, and make it someone else's problem. That's the only return you really have to pay someone else for, as Paul observes when he says that GST and withholding returns are dead easy to do yourself once you know how.
Interesting that the World Bank ranks us 12th for ease of paying taxes. The UK is 16th, Australia is 48th, the US is 46th. Many of the countries ahead of us are such hotbeds of taxation as the Maldives, Saudia Arbia, and Qatar. The only heavily tax-regulated economies are Ireland and Singapore.
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I'm more interested in getting the tax system to reward long term capital investment - that means not playing the market to make a quick buck but putting money into the growth of companies over the long term.
Anywhere else this is called a "capital gains tax" it's a LOWER tax on long term capital gains (in the US it's ~25% compared with ~38% marginal) - our problem of course is that we don't tax capital gains at all so we can't reward the people who invest in the future over the people who watch too much house-porn on TV and want to make a quick buck flipping property
Incorrect. The proceeds from the disposal of any property purchased with the intention or purpose of resale can be taxed, and that extends to houses. The IRD's problem is that it doesn't have the funding to chase all the property speculators. If they did, it might make rather a difference since the onus is on the taxpayer to disprove the intent/purpose claim. The up-side is that sale of shares in a company that you started is totally tax-free. Yes, really. Sam Morgan et al got to keep every single cent of the $700-ish mil that they were paid for TradeMe. Every cent. Overseas they would've been stung hard, even in the US. It's a two-way street, and it's just very unfortunate that it's houses, not companies, that people get wet dreams over. I don't know how it can be made more attractive than tax-free, really. The best thing that can be done is to change the rules on what attracts tax with the disposal of housing, and publicise that you get to keep it all if you sell a successful company that you helped found.
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I think you're missing my point - by not taxing capital gains we can't give incentives for long term investments - so long as short term real estate churn is treated the same as investment in a new factory we're going to get more real estate churn and less new industry
Also I don't see why people who create companies shouldn't be taxed just like everyone else (and that would be me - I'm in the middle of trying to do a startup). Profits from capital gains should be the just same as profits from trading
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Sofie was almost right.
Thanks Matthew,( bit rusty) Sorry Mark (least it got sorted ) :)
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Paul, my point was that we can tax capital gains. It's not called a capital gains tax, but its intent is precisely that. If IRD got funded to chase people who engage in property speculation and ensure they're compliant, it would raise the tax base a fair bit. If the rules were tightened around residential housing, it would raise the tax base even further.
I also don't see that bringing in a blanket CGT on all property sales would be of benefit. For one thing the way the system is written at the moment means that I can flog my belongings on TradeMe without having to report the income. That's because I didn't buy them for resale, I bought them for personal use. It greatly simplifies things for individuals when they're not in the potential position of evading taxes by not returning gains made from selling possessions. The hole is around residential property, which is made greatly more attractive as an "investment" due to its having the same status as any other personal property.
Plus, with our rates of investment in startups being so woeful, I can't see that the situation would be improved by bringing in a tax that catches those few who do invest. It may even prove to be counter-productive.
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If we tax everything (not just property, all capital gains) the same then give long term capital gains a ~10% break because we want to encourage them (this is the US system) - then investment will tend go into things like startups rather than property/etc - investing in property doesn't make more property - the planet doesn't expand if we invest in its surface - starups on the other hand are limited by the number of bright ideas.
The US system recognises that people's houses are a special case and provides an exemption to capital gains on the sale of a primary residence if you put the proceeds into a new primary residence withing a reasonable time - and over the years has tried a number of ways to handle retirement (variously a one-time-in-your life everything writedown and a periodic fixed value - $500kish writedown - the last of which I took when I moved back to NZ)
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Compliance with tax legislation in NZ is very good. At least part of that is attributed to the simplicity of the system. Introducing complexity reduces the incentive to comply and increases the costs for playing by the rules. If all gains are to be taxed then all costs must be allowed to be deducted. Administering that becomes incredibly difficult.
GST is the most-contested aspect of the tax system, and it's so ridiculously simple that I'd never believe it if I hadn't been told by a taxation lecturer who consults to the IRD. -
Some independent analysis of the costs of various ways to move money in/out of the country for businesses of different sizes wouldn't go amiss either - I always feel I'm getting ripped off
I totally agree with you there. The non-trivial fluctuations in exchange rate are a major cost of doing business, significcantly driving up the uncertainty in making investments - make the wrong bet and you could cost yourself considerably. We can't all hedge like Fonterra. And for those who do, it's another cost.
In this era of electronic transactions, the cost of exchanging money for both consumers and businesses is still ridiculously high. I feel like it's a rort, and the Commerce Commission should investigate, but I admit I have no evidence for my position.
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David - insightful post. You identify a thought gap. The NZ export as a % of GDP is a joke for a nation that considers itself a little nation of exporters.
Tom S - I understand what you mean. Rarely have we agreed. New Zealand over the last 25 years has been like the naive English gentlemen who queues honourably and is crowded out by the Italians and French who jump the queue and dont play by the "rules". They get what they want and the gentleman misses out. America insists everyone else support "free trade" then subsidise their agriculture and exports to tilt the playing field. It is past time New Zealand woke up and played according to the reality and not the theory.
The low cost of doing business mentioned in earlier thread is a good thing but it is far outweighed by the tilted international playing field
The only way for New Zealand to get back into the higher wealth nations is through education and technology to raise the number of people in New Zealand who are capable of operating in a global technology market and by ensuring that tax, service costs and regulation are skewed towards those adding value rather than taking a cut like stephen tindall.
It does not get much better in value adding terms than taking almost valueless clay and turning it into crockery
The mindset requires a complete shift and I am not optimistic.
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I read the Very Important speech our Prime Minister gave this week with the strongest feeling of deja vu.
You mean Mr Key used your website to generate his speech?
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Heh. I'd like to think the overhauled system, when I push the button on it, will be capable of such a thing. But with more flesh, of course.
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I have been having thoughts like this for quite a while now - so much of what most people do (myself included) for "work" doesn't really add a lot, not just to the economy but to life in general (other than allowing us to "pay the bills" and buy cool thing...).
I wonder if this has to do with the devaluing of the kind of work previous generations would have considered valuable? Doctors, nurses, teachers, builders, farmers, librarians (yes Danielle)... instead everyone is busting their guts to get into finance or forced to eek out a living doing something that adds little....having been forced to take out a student loan to get there (Certificate of Call Centre Operations?!)
I caught a promo for that stupid money nazi programme the other day where the subject actually wanted to become a full time ironman. Mmmm. So useful.Right up there with being a professional snowboarder.
Peter Gluckman had a point the other day when he bemoaned the fact that the finest minds of the last two decades have been (understandably) going into finance and not science. Slight simplification of what he said but that was the gist of it.
Finance pays off the student loan, has stellar career opportunities and fabulous salaries...as opposed to science, with poor salaries and opportunities and a fragmented science community all competing for ever smaller amounts of money.
Actually, I take that back about teachers. I don't believe they were ever really valued. Which is possibly part of our problem.
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no, teachers were valued, a while back.
my great grandfather was a teacher in native schools around the North Island from the 1880s to the early 20th century.
his efforts were valued, from what i have heard.i'm not sure that teachers are not valued now by the community. at least good teachers, anyway. i think the media and politicians tend to use them as an easy target and stereotyping is rampant in how they are portrayed in the media.
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Pay for teachers - relative to other careers - began to erode somewhere around the late 70s, though, it seems to me. To put a fiscal value on it.
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valued by the community, which isn't willing to pay a commensurate wage. hypocracy, definitely.
so what changed from the 80s onward?
(my guess is that accounting and law degrees became much more popular than plain old arts and science) -
Just caught Moana Mackey for about 1 minute today and her mention of Unions in Oz, stronger and more as relative to wage being higher. Sounded interesting. Then I had to do something else and when I got back I couldn't bring myself to listen (or watch) Garrett so that was that. Jus' sayin'.
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It is my opinion that from the end of the 1970's there was a concentration and focussing of capitalism (for want of a better way of phrasing it) that has turned most western capitalist societies into the money- and consumption-focussed that made them such easy victims for the recent financial failures.
All that "greed is good" ethos develped through the 80's and through the expansion of means of rapid communication (ubiquity of tv, development of the internet, profusion of niche marketing). And this was necessary to the economies of those societies in order to promote the endless growth on which the capitalist commercial model is based.
With this changing focus we all, by virtue of our places within these societies, have had to take on the primacy of a fiscal value of jobs and enterprises and lose the emphasis that was previously placed on the societal benefit.
Short story - we have been sold-out to the money-meisters.
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