Posts by Rob Hosking
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Kyle, Ben,
My analogy with the environment wasn't a perfect analogy - but then you almost never get a perfect analogy.
What I was getting at was it's all kind of small scale, low key stuff, that people can do.
Ben, as your comment about saving not necessarily being good for the economy - yes, that;s right. Sometimes people can be too keen to save - Japan has been a recent example of this.
But in some cases it can be. And in NZ there is an issue with our huge personal debt - did you see those figures out this morning?
That high level feeds into the current account deficit, and that's what is keeping our interest rates high by international standards.
There's an argument - I've run it myself - that the reason NZers don't save much is our low incomes. There's an element of that, yes.
But there's also an issue of culture, to use a fairly wooly term. Countries with lower average incomes than ours have managed to have a good savings record. At a personal level, I've known people on low incomes with a good savings habit.
I'm saying all this, btw, as someone who (a) doesn't have a particularly good personal record in this area (although I'm better now - marrying a Dutch woman had something to do with it) and (b) used to take the view that concerns about our savings level were a beat-up by the funds management industry. What changed on this point was seeing what was keeping our interest rates so high.
On the quesiton of taxes and inflation: fiscal policy isn't set to deal with inflation: as you noted, its there to raise money for govt services.
However how it is managed can have an impact on inflation.
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I wrote:
And, personally, I think both the main parties are nudging into irresponsible territory on this.
Craig wrote:
Rob, I'd say you're erring on the side of generosity on this one.
A bit, maybe. I've been immersed in reading on NZ's recent economic history recently (because that's the kind of wild and crazy guy I am) and by comparison the current pollies are only being a bit reckless. Maybe. (and not because they're more virtuous, but because we've got far greater transparancy now with an independent Reserve Bank and the Fiscal Resp. Act).
But I do hope you and your colleagues are going to ask -- and keep asking until you get a fudge-free answer -- some hard questions about the trade offs involved.
Yeah. It's something I've decided to make a bit of a mission this year.
The 1996 tax cut is the nearest parallel we have to the current situation and back then the Reserve Bank did some rough calculations and said it should be OK. However that was based on what turned out to be two optimistic presumptions: one was that inflation would not get nudged higher by other factors (which it did) and also that people would save about half their tax cut (which they didn't).
Mind you, at least back then the govt of the day consulted the Reserve Bank and got its public endorsement of the tax cut. That hasn't happened this time.
A couple of points in response to Kyle:
Are we being made to feel responsible for the economy? Well, no more than we're all being made to feel responsible for global warming or other environmental concerns. And its similar in principle: you can do a little bit to help, perhaps: put out the recycling and when you need to replace your car try to get something a bit more fuel efficient. So with the economy: save a little bit more, if and when you can.
I'm in favour of tax cuts. It's money we earned. And the govt has been taking more than it needs for several years now, partly because there's been an inbuilt pessimism in the Treasury's forecasts; partly because since the post-Asia Crisis bounce-back in early 1999 the economy has been growing far faster than anyone predicted, and faster than it has, for an extended period, since the early 1950s.
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dc_red
We had high interest rates even when the dairy price was low.
The main reason they're so high is we're a more risky bet. We've still got a relatively narrowly-based economy, but, much more importantly, we've got a large overseas debt, and have had since the early 1970s.
And the high dairy prices - if they turn out to trigger, as some economists are starting to cautiously suggest, better terms of trade for NZ - are the best bet we have for lowering that large debt.
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Anyway, what do folks think of Cullen's op-ed in today's Herald? On the political tip, I'd have to give him credit for striking just about the right tone. But substantively, a sounds assessment of the prospects for New Zealand, Pollyanna making a party political broadcast or a bit of both?
There's a bit of political alibi-seeking in his comment about expanding fiscal policy more if the economy needs it. The fact is, we're going to have an expansionary fiscal policy over the next couple of years whether the economy needs it or not - regardless of who wins the election. And, personally, I think both the main parties are nudging into irresponsible territory on this.
On the wider economy though I don't think Cullen is being Pollyannah-ish - as you say, I think he struck about the right note on that.
Bollard this morning stressed the economy is pretty sound at the moment: we're not teetering on the brink of recession like the US, and although inflation is uncomfortably high we're not in the same position as the Aussies.
Although the big good news story - dairy - will probably come back a bit it still puts us in a good position for the next couple of years.
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Craig,
Is Idlewild the book that has protesters besieging the White House chanting 'Hey Hey JFK How many kids did you kill today?'
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The hard part is measuring people's intent. In houses, especially, the IRD hasn't really done much to enforce this rule.
Hmm. Not quite. One of the issues is where does the burden of proof lie in proving intent: the IRD or the taxpayer? The few cases are a bit sketchy on this.
Of course, if you are regularly buying and selling real estate every couple of years the IRD kind of feels its got you bang to rights.
The provision regarding intent to sell has been in the Act for a long time. Funnily enough - well, I think its funny - the then United Future MP Gordon Copeland wrote a letter to Cullen back in 2003 suggesting the IRD more actively enforce this part of the Act, so as to cool the housing market.
Tax officials supplied a long memo back on why this wasn't a good idea. Amongst other things, they said it would be tantamount to a "de facto capital gains tax".
(I've written about all this in NBR and Property Magazine)
A couple of years later they started doing just what Copeland suggested. Set up special teams in Auckland and Central Otago. Got quite a windfall; hence Cullen throwing them an extra $14 million in the last Budget to enforce it more rigorously across the country.
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Cruel.
There is something about the age of 28. A very good friend of mine who is a professional psychologist in Auckland is a firm believer many people go through a huge crisis at that stage. There is a New Agey theory it is all to do with Saturn's cycle - "Saturn's Return" its known as. He isn't into astrology, or even particularly new agey, but he's found the age of 28 is when a lot of people go into a 'What the fuck" funk about their lives.
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Stephen,
Yeah, I think you're at least partially right about NZ firms.
By and large they've been very cautious users of credit over the past few years. In fact, the Reserve Bank has pointed out they're net savers.
As far as pension funds go....well, I've got a bit of money earmarked for KiwiSaver but right now it's earning a pretty good rate in the bank. Might keep it there for a wee while longer...
Russell: If you've got time (yeah I know, big question) complain. We've had cause to over the past year. It's an onerous process crafting fully documented complaints letters but its worth it. Partly there's the public service element (case workers seem wildly varying in quality, in our much shorter experience than yours: some are worse than useless, other I'd want to put up for sainthood).
But it also sends a message: don't mess with us.
Oh, and congrats on the NCEA thing. Must have been a real lift.
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I used to know someone who once addressed some visiting US businessmen more or less thusly:
"Welcome to New Zealand. We say what we think in meetings, we swear a lot, and you can't sue us. Understand that and we'll get along fine."About eight years ago there was a feature in the Australian Financial Review about US owned companies dealing with their Australian staff.
One IT firm had sent out its product people to talk about some new gizmo they were working on: they did their rave up to the staff and then asked for questions....the first question began 'you guys are full of shit....' and went downhill from there.
That was an extreme case, but the issue of a big cultural difference was quite a significant one, apparently. NZers aren't that rude, by and large, but we're fairly used to the Aussies being like that, I think.
Much further back: I remember reading about some All Black game against a Welsh club side in the 1930s (the game was in the 30s, I was reading about it much later...) The Welsh had decided firmly before the game to keep any off the ball fisticuffs to a minimum. But at some point one of the ABs called a Welsh player - a devout chapel goer - an extremely rude thing: the Welsh bloke looking pleadingly at his captain, who gave him a nod, and the guy let fly. The write up said something about the term - which was apparently unprintable - being "almost a term of endearment" in NZ but being a deadly insult in Wales.
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My daughter is hearing-impaired, and often used to pick things up not quite right. I did wander down the hall once to hear her singing the Inky Wanky Spider song.
I have a niece who, when aged three, was heard running around the house singing the Warehouse jingle 'The Warehouse! The Warehouse! Where everyone gets a bugger!"
Cue mutual 'She didn't get that word from me" reaction from parents.