OnPoint: Election 2011: GO!
848 Responses
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Paul Williams, in reply to
But, really, I just don’t think there is a solution to the funding vs. brain-drain problem that is entirely funding based. Even if you cut funding for students, you’d need to address the real question, which I think is – what do we want out of our university-educated population? Why do we want people to have degrees? Do we need this many people to do full degrees? Are we still willing to pay for anyone who wants a degree to go to university? Are we willing to set boundaries on who we’re willing to pay for? You can’t form solutions without addressing those issues.
Lucy, I'm not necessarily saying student support should be reduced though I am questioning the value of interest free loans (which is not quite the same thing). I agree a highly educated population is desirable and that the only metric shouldn't be wages.
And, as I’ve said before in similar discussions, there needs to be more of a willingness to accept that we are a tiny country at the end of nowhere and a bunch of our best-educated will always leave once they’ve graduated because they’re smart and curious and know there’s a big world out there. The trick is in making sure that “a bunch” is not “everyone”, that we can attract other countries’ best and brightest in return, and in ensuring that a significant portion of them do come back
This is fair too.
It's still worth thinking about what policies and practices could improve matters. You previously said, and I agree, that more people would be retained by better jobs (and possibly more still if they appreciated the benefits of living in NZ versus other places). Some more thinking about the bundle of expectations graduates have would be worthwhile since the cost of losing someone you've trained is bloody high. Ultimately though, I do think NZ will always lose a disproportionately high percentage of graduates who simply want to travel. Perhaps part of the solution is to do more to attract them back or at least network them more effectively. Kea does this to an extent.
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Sacha, in reply to
If you want to encourage reinvestment then you provide tax relief
Because corporate welfare is a natural thing
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Matthew Poole, in reply to
The trick is in making sure that “a bunch” is not “everyone”, that we can attract other countries’ best and brightest in return, and in ensuring that a significant portion of them do come back.
This is the big hook. As you say, we'll never keep all of our highly-educated young people, and a majority will travel at some point. I'm being pushed to do a stint with one of my employer's overseas offices to get exposure to projects of a scale that'll never come to NZ. If I do so, it'll ultimately be to NZ's gain because the skills that I'll bring back couldn't be honed in the same way here.
However, when people are coming from overseas and saying "It's so expensive to buy a house" and "It's so expensive to buy food" and "Your wages are so low", that's not encouraging high-quality long-term immigration. Quality of life only makes up for so much when you're going from EUR or GBP250k to NZD90k and losing work variety to boot.
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Matthew Poole, in reply to
I consider a CGT will have two major effects:
Yes, we know you do. But you cannot produce evidence to support your position, whereas Elliffe's piece examined real-world implementations of CGTs and determined that there would be long-term benefits to NZ to also implementing a CGT. He is also not a raving leftie.
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Steve Parks, in reply to
Who are the “Too many that are doing business for capital gain” and what is the proof?
Once again, I will point out that you happily ask for proof, facts & figures when someone makes a point in favour of cgt, but can’t provide any in regards your key complaint about rent increases. I accept Huang and Elliffe’s case, a case they made after looking at actual overseas experiences with cgt. I also accept Matthew’s counter to you about rents, and how it won’t be a significant problem, especially in the medium to long term. I’m looking at the big picture, not worrying about whether there may be a one off increase in rent at the time of introduction.
If you want to encourage reinvestment then you provide tax relief
And pay for it how? Elliffe and Huang note that revenue from a cgt could be partly used to reduce other taxes, if that’s seen as desirable. If you were arguing for something like that to happen, it’d make more sense to me. (Personally, I’d like to see the revenue from cgt go to debt reduction, and increasing spending in some areas.)
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Paul Williams, in reply to
However, when people are coming from overseas and saying “It’s so expensive to buy a house” and “It’s so expensive to buy food” and “Your wages are so low”, that’s not encouraging high-quality long-term immigration. Quality of life only makes up for so much when you’re going from EUR or GBP250k to NZD90k and losing work variety to boot.
I personally relate to this scenario. The factors you consider obviously vary according to circumstances, for me with a young family it's about schools, parks, facilities as much as it is about career. I'll take a pay cut to do something meaningful, I want also to ensure my kids opportunities aren't unreasonably narrowed.
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I don’t have time to do a full blown expansion on my thoughts on CGT but one of the things that is crucially missing in some of the discussions here is the dynamic aspect to the housing market.
Suppose a CGT is implemented. A simple Econ 101 approach would be to say that the demand curve for housing shifts leftwards (less demand for housing by landlords) and thus there is a decline in both the price of housing and also the quantity sold. But note that as the stock of housing is relatively inelastic (it takes time for houses to be built or demolished [ETA: OK – I know not strictly true for pulling them down but that’s pretty much the exception to the way the housing market works]), the effect would be more apparent on the price than the quantity. If the quantity being bought and sold is largely unchanged then there are two (non-exclusive) things going on here:
1) The lower price attracts previous renters into purchasing, reducing the demand for rental accommodation; and
2) Landlords see the decline in prices this attracts some back into the market.So there are three impacts on the rental market: the initial decline in the demand for housing by landlords and thus a decline in the supply of rental accommodation; a potential leftward shift in rental accommodation demand; and a potential rightwards shift again of the rental supply curve after the initial leftward shift.
How the initial impact and these subsequent effects ultimately impact on the rental market and on rents in particular is ambiguous from a theoretical perspective. As an economist, I find the assertion that a CGT must raise the cost of rental very suspect.
There may well be other factors that come into play that I don’t have time to really think about (like the degree of competition between landlords).
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Sacha, in reply to
I’d like to see the revenue from cgt go to debt reduction, and increasing spending in some areas.
I'd love to see a decent amount invested in equity and expertise to grow businesses that are NZ-owned even if they're not based here, so we reverse the flow of dividends overseas.
Young Kiwis will always travel to where work opportunities take them. But imagine people setting up or joining with a consulting or other business before they leave, with ongoing help to do it right, a seed investment to get them started and networks like KEA to hook into.
A proportion of their wealth would return to the NZ public and there would be some incentive to remember where they came from when looking at next steps. NZTE already has much of the infrastructure.
Not a low-risk investment but it has to be better than the public purse subsidising capital gains on residential property or foregoing tax revenue through LAQCs.
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DexterX, in reply to
No, because if you get a concern that is exporting you encourage it by providing it with a tax break as regards the amount of reinvestment and development and what you get is more growth - that concern by virtue of the reinvestment able to increase their activity, the people they employee and the export receipts they bring back into the country.
The rate of growth in a concern is directly related to the level of reinvestment.
Providing a tax incentive is not a handout - the concern still has to go out and earn the money it reinvests in its operation it isn't getting a grant.
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If you increase the inputs into an equation of which the net outcome is rent - IMHO you get a rent increase.
A lot of the left leaning thinking in this thread seems to think that the Govt should be Robin Hood and take from those that they think have and give to those more deserving and that when "we" take the CGT and give it to the Govt and it is
" invested in equity and expertise to grow businesses that are NZ-owned even if they're not based here"
and then to take some of
"the revenue from cgt go to debt reduction, and increasing spending in some areas".
All the tinkering the left leaners want done is cutting up bigger pieces of a pie that are getting smaller and smaller. The problem with leaning to the left or to the right is it is a crutch that stop one from thinking for oneself and seeing a different view.
With housing ranging from between 6 to 10 times the average salary depending on where you (want to) live.
It is interesting that as at 9 Sept 2010 average salary men $1,069 per week & women $868 and the medium income for all at $529 per week. Taking into account the cost of living it is has long been game over for a good half to three quarters of the population.
Unless the policy direction allows wealth/growth to be created and the economy to grow and with it wages then just forget about it – nothing can be sustained.
I don’t support CGT and asset sales as:
1) they won’t help grow the economy
2) they will increase the costs of living in rents and higher power prices -
Steve Parks, in reply to
A lot of the left leaning thinking in this thread seems to think that the Govt should be Robin Hood...
You don’t have to be left leaning to favour CGT. Why do you want to take from the general pool of tax payers, and give to the people who make a capital gain (i.e. revenue)? Why are you trying to be Robin Hood, Dexter?
The problem with leaning to the left or to the right is it is a crutch that stop one from thinking for oneself and seeing a different view.
My view on cgt has changed over time, and not at all in correlation with being “left or right”. Again, you don’t have to be left leaning to support a cgt. Someone who is capable of seeing a different view is someone who is willing to change their view when the argument or the evidence is provided. You are the one being dogmatic here, not us “lefties”.
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CGT or no CGT, I think we all agree that the speculation industry is at the heart of the problem, as codified by Inside Job. Ideally there'd be a Tobin Tax or FTT, but there needs to be international backing behind it to work.
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Steve Parks, in reply to
Inside Job
Might go see that at the Paramount tomorrow. Either that or Winter's Bone. Or I might go see a mainstream film at Reading. Depends on my mood.
But Inside Job is on my must see list.
...here, the people in power are still lying and trying to cover their tracks. The financial officers interviewed on camera squirm under Ferguson's scrutiny and attempt to avoid his questions. Unafraid to be increasingly aggressive over the course of an interview, Ferguson, unlike Michael Moore, keeps himself off camera so the focus remains on the subject. ...
Inside Job is a tragi-comedy of epic proportions, dark and despairing, and like the best satire, it will make you want to shake your fist and scream at the screen.
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Coincidently, I have just read this comment by property lawyer David Whitburn. … I’m not sure where to start pointing out the flaws and inconsistencies in his argument.
Oh, and this is by the by, but I figured out where to start.
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Lucy Stewart, in reply to
Lucy, I’m not necessarily saying student support should be reduced though I am questioning the value of interest free loans (which is not quite the same thing).
It's probably worth me noting that I am actually in favour of achievement-based reductions in support; i.e. we'll keep your loan interest-free if you finish your degree, that sort of thing. There are a lot of people going to uni who go, whether they're ready or not, because it's pushed as the best way to get ahead, and who then drop out after a year or two with a not-insignificant loan and nothing to show for it. This sort of thing is hard to structure, though; lots of people will not succeed immediately or have to come back for a second try, or have other life circumstances force them out, and they shouldn't be excluded.
I’ll take a pay cut to do something meaningful, I want also to ensure my kids opportunities aren’t unreasonably narrowed.
I have to come back to NZ for at least two years once I'm done over here, by the terms of my scholarship, but the big thing when I think about whether I'd come back to NZ longterm is kids - bluntly, the potential career opportunities and pay are ridiculously better for both me and my partner here, but then we'd be committed to raising kids here. And I'm really not sure I'd want to do that. (To be entirely fair, I feel the same way about Christchurch.)
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DexterX, in reply to
Mr Parks - with the depreciation gone from ppty invesmtent in ppty is on the same basis as all other form of investment in NZ to my mind that ws all that was needed.
I don't have a dogma, I would hazard a quess that you are in safe employment a government or psudeo government type job perhaps and that might be why you just don’t get it.
A lot of has been said about speculation by many here with no understanding of what is speculation.
The view has often been expressed here that investing in ppty is speculation and it is not. Investing in ppty is not speculation and people investing in ppty in NZ did not creat the GFC. Investing in ppty does create work and consumption of goods and services.
What is happening with the price of gold from Nov 09 till now is a speculation and that bubble will likely burst sometime this year.
What inside job highlights is the unholy union between the finiacial services idustry and governments and why the crisis wil lhappen again and again and again. It is the union between financial services and the government that is the main driver in the GFC.
http://en.wikipedia.org/wiki/Financial_crisis_of_2007-2010.
There is a direct relationship between the declines in the standards of living(wages not keeping pace with price increases which we are all currently experiencing), and decreases in consumption and business investment (which includes export business reinvestment), which along with government fiscal policy are the engines that drive an economy.
The increase in GST has killed of a gathering recovery, and has in my mind been partly responsible for the double dip recession that I understand we are looking at. The “government’s books” may even have been in a better position if the increase n GST had not taken.
Unless the policy direction allows wealth/growth to be created and the economy to grow and with it wages then just forget about it – nothing can be sustained.
NZ households are currently paying down debt, which will intime
I don’t support CGT Labour are wanting nor the and asset sales the Nats promote as a solution as:
1) they won’t help grow the economy
2) they will increase the costs of living in rents and higher power pricesIf you don’t get what I am saying – then you just don’t get it.
That is all, and thanks for taking the time to read this post if in fact you do.
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Sacha, in reply to
you encourage it by providing it with a tax break
yawn - please update your dogma
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Sacha, in reply to
The increase in GST has killed of a gathering recovery, and has in my mind been partly responsible for the double dip recession that I understand we are looking at. The “government’s books” may even have been in a better position if the increase n GST had not taken.
That we agree on - and English was warned that he was about to make the same sort of mistake he's made before. Proudly ignorant fool.
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Matthew Poole, in reply to
I don’t support CGT Labour are wanting nor the and asset sales the Nats promote as a solution as:
1) they won’t help grow the economy
2) they will increase the costs of living in rents and higher power pricesYou say it with such absolute conviction, but you offer no analysis, never mind proof, to support your blanket assertions.
I don't necessarily disagree with you about power prices, but we definitely disagree on the impact on rents. I've got economics - both theoretical and observed - on my side. You have nowt but your gut, and your gut does a very poor job of explaining its long-term view. You have put forward not a skerrick of supporting evidence to back up your claims that rents will rise further, long-term, than they will without a CGT, you just state that it will be so.Similarly, you have put forward nothing to support your absolute certainty that a CGT will do nothing for the economy. If we broaden the tax base, taxes with a significant dead-weight impact could be reduced, or abolished. Or R&D credits could be reintroduced. Hell, we could even offer that tax relief to exporters that you've been burbling about. The evidence says that a broad, consistent CGT will raise quite a lot of money, and that can either be used to improve government services (which goodness knows we'll need by the time English has his claws prised from the Treasury strings), or to offset other tax income for an overall neutral tax impact.
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Overconfidence is thick on the ground - a twattish young insolvency practitioner offers more pearls of wisdom and reinvented history:
The proposed sale of state assets has caused some hand-wringing by economic illiterates fretting over the risk of foreign ownership.
...American capital and know-how transformed Telecom from a moribund behemoth into a dynamic enterprise driving the explosion of telecommunications infrastructure that propelled New Zealand into the internet age. The new American owners took their dividends but these were dwarfed by the benefits returned to the wider economy by a transformed Telecom.
Try building Trade Me on a telecommunications network made from number 8 wire.
A farmer borrowing money to develop his farm may lose equity in the land but if he ends up selling more milk to China the overseas lender, the Kiwi farmer, and the Chinese consumer all benefit.
When we as New Zealanders swap some of our assets for cash our net wealth remains unaffected. If the new owner invests and develops that asset New Zealand makes an economic gain.
Someone's illiterate, bud, but it's not who you think.
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Steve Parks, in reply to
Overconfidence is thick on the ground –
Why are these types all so arrogant?
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Steve Parks, in reply to
I don’t have a dogma, I would hazard a quess that you are in safe employment a government or psudeo government type job perhaps and that might be why you just don’t get it.
Thanks for reading my blog.
But otherwise, I’m not sure what the point is of this odd paragraph of yours. If you’re suggesting that people in the public service are all lefties who support things like cgt, then you’re just showing your ignorance. Same if you think they all feel “safe”.[Matthew wrote:] You have put forward not a skerrick of supporting evidence to back up your claims
Supporting evidence is something he demands from his opponents. Expecting he might provide his own is totally unreasonable.
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DexterX, in reply to
There is a definite leaning in this thread that supports more taxation, We need a government that will tax it’s way out of the crisis only then will they be "dancing in the streets and loving everybody" - The Young ones..
Interesting, I didn’t think you would be part of the productive base of the economy the part that makes or trades touchable thangs - working for the state - that's communism isn't it?
The state sector is pretty immune though it does get the odd shake up now and again just to make it look like the Govt are doing something.
A CGT is not required - the sale of power generation isn't required - I have said why neither is necessary. I don't think a lot of you actually understand what I am saying – but I don't mind that.
Matthews says "consistent CGT will raise quite a lot of money", so where will that money come from? In my view it will come from rent – that is the stuff that tenants pay and landlords collect.
I don’t think that taking money, from rent, out of circulation in the economy and giving it to the government is a good idea - it won’t solve the problem though it will make it harder for people renting.
In an equation where CGT becomes an input and rent is the output - the introduction of a CGT (Land Tax) rents will increase as a result. Landlords will need to collect more rent to pay for CGT and tenants will have to pay more rent to secure tenancy in a rental market with a shrinking stock of rental ppty.
For more reasoning refer to this
http://www.grantthornton.co.nz/Press/2009/housing-rent-rise-likely-with-capital-gains-tax.htmland also the herald link I posted earlier on accomoadtion shortages.
Obama didn’t want to kill off the hint of recovery and went with a smaller than expected CGT tax increase. The Nats would have been better leaving GST as it was and I don't think Bill English has claws though I can tell you Michael Cullen has a wide screen TV - Last time I was standing outside his house, in the rain, alone, watching him through binoculars he did posses one – it was I understand a moral dilemma for him that he solved by never turning it on.
In the UK they went with an increase from 18% to 28% they were thinking about 40% - and although this was touted by the Govt as good news. Rental accommodation in the UK, particularly London, is in crisis there is an ongoing acute accommodation shortage created by a lack of properties as landlords exited rental properties and rents are well up.
In NZ depreciation has been removed from property and there is now an accommodation crisis, particularly in Auckland.
I can’t provide you with any research that says what the effect of a CGT is, it hasn’t happened yet, though I do look at what happened in the UK situation and how rents in NZ have moved upwards following the removal of deprecation.
It is my opinion that rents will increase with a CGT. I have said more on why in earlier posts. To provide a simple analogy when the cost of steel production goes up the cost of steel products also rises.
I am interested in what Matthew considers are the taxes with a, “significant dead-weight impact could be reduced?”
Matthew, Ben and you Steve seem to all sing from the same songbook, I find it hard to differentiate between who is responding.
I do however rest assured that you have a shared conviction for the working poor and that should Labour win the next election, introduce a CGT and rents do go up you will all likely not be too bothered. So it really shouldn’t matter what I think.
I feel this thread is an exercise is in pseudoscience,
I am not looking forward to being proved right should a Labour coalition win the election and embark upon another great experiment.
I also think a CGT will have a depressive effect on the economy as a whole.
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Matthew Poole, in reply to
Matthews says “consistent CGT will raise quite a lot of money”, so where will that money come from? In my view it will come from rent – that is the stuff that tenants pay and landlords collect.
Again with the presumption that the CGT would be levied annually on value rather than at sale based on profit. Explain, please, why you are the only person in here who's suggesting that that would be the way it would be done?
And can you please explain why a CGT would cause the rate of rent increases to exceed in perpetuity the rate of rent increases should there be no CGT? Please? Because you've said many times that you think this will happen without giving a shred of supporting evidence.
Remember, you evaluate a tax for long-term effects, not short-term ones, though the way you keep on evading the topic I have no faith that you a) understand long-term vs short-term effects or b) actually have the slightest real understanding of what you're saying.As for my dead-weight taxes, it was a supposition. I don't know enough about the various types of taxes (or enough economics) to evaluate them all for economic impact and decide if one has a greater dead-weight impact than another.
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Matthew Poole, in reply to
I feel this thread is an exercise is in pseudoscience,
The irony. It burns.
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