David Thompson Posted:
So very, very true. It beggars belief that we consider ourselves to be a developed nation when so much of our economy is based on selling milk powder or logs. BTW, I own a Plinius amplifier (my second) that drives a set of Theophany speakers.
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David Thompson Posted:
A robust but sobering report. It concerns me that confidence is rising, yet sales and exports are down and "manufacturers and exporters are still lagging behind other sectors". Surely we should wait until we're earning more money before we start spending more?
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siemens Posted:
Yes true! The only thing that will never die in this world is the nature and its science behind it. Great post.
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Kieran Ormandy Posted:
Thanks for the question Steven, Germany has seen increases in manufacturing employment since 2009, and Switzerland has had stable manufacturing employment between 2006 – 2011, even in the face of ongoing Euro-zone issues. Korea has seen increases in manufacturing employment since 2008 and Israel experienced large increases since 1998, while being stable over the last 4 years. Singapore has had increases in manufacturing employment over the last two years. These countries all value their manufacturing sectors and work to protect them, this is reflected in the above numbers and their performance through the GFC. Note data around the above examples was sourced from OECD labour market stats.
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John Walley Posted:
Point one: you should have no doubt what our Association says publically represent the views of our members. Point two: we don’t knee jerk responses, if you trace back our comments around NZPower you will see them link all the way back to our research in 2004 and 2005. All that material is fully linked from our comments above. Point three: you will note our comments on major users, sadly the same advantage does not accrue to smaller industrial users. The perverse incentives of the LRMC approach in all this are well known. Point four: the NZMEA is not like any other Association in New Zealand we admit only manufacturers and exporters into membership, and our public expressions are the views of that restricted membership.
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Selwyn Pellett: Some facts on Labour's tax package

Print-friendly 1 comment(s) Posted in: 3rd party

Those opposed to Labour restructuring of the tax system have come out with a bunch of emotive statements which does little for their cause and has tended to expose the pockets of self interest in this country.

We seem to be in a near religious debate about what’s right and wrong, so in the absence of a science to prove either case let’s at least revert to some known facts to at least balance the arguments.

The biggest argument in favour of changing our tax base is to signal the need to change our investment behaviour into the productive sector ie those that are job generating, export earning, debt reducing, tax paying businesses and away from inflation seeking/causing, debt creating, tax avoiding investments that are largely land and property based.

Anyway the facts are below.

  • Australia top tax rate is 45% and kicks in at $180K
  • However they pay 37% from a much lower $80K threshold
  • Their share market has increased since the introduction of CGT circa 17X and ours 3X
  • Australia have a huge number of exemptions on GST and makes fruit and vegetables look small as follows

Broadly, the following are examples of GST-free supplies:

  1. most health and medical care services
  2. most educational services
  3. most food for human consumption (other than prepared foods, confectionery, snacks, icecream, biscuits, alcohol, soft drinks and certain other drinks)
  4. certain activities of charities and related bodies
  5. international travel and transport
  6. sales of 'going concerns'
  7. certain dealings with land
  8. exports of goods or supplies of things other than goods or real property for consumption outside Australia, if certain requirements are met.

They have exemptions on CGT and so would Labour's as follows:

  1. The exemption around Christchurch is a one off.
  2. In Australia if the asset class attracts CGT and was held for more than 12 months 50% of the gain is tax free and then charged at your marginal tax rate.

So if wealthy that would be 45% / 2 equals 22.5% for Australia with New Zealand at 15%

Our housing boom was far greater than our graphs below (Source Macro Economic Imbalances conference two weeks ago).


Our export industry has been going downhill since 2004, largely because of an artificially high dollar, caused in part by the interrelationship of our floating dollar, high current account deficit and crown borrowing, monetary system that targets just inflation, cheap and mobile capital flows looking for a high yielding home that has caused asset bubbles in New Zealand and elsewhere. This relationship is best explained as follows…

  1. High current account deficit increases our foreign borrowing
  2. A fiscal deficit means an increase in crown borrowing
  3. High national debt (crown and private) = High interest rate
  4. High Interest rates = high exchange rate + low productive investment
  5. High interest rates differentials leads to unproductive capital inflows
  6. Unproductive capital inflows cause asset inflation
  7. Asset inflation triggers an increase in the Official Case Rate
  8. Higher OCR leads to higher interest rates and higher exchange rate
  9. High exchange rate = high current account deficit
  10. Repeat until the World Bank arrives. A fiscal deficit means an increase in crown borrowing

A visual representation of above problem:

 The results are of these impact are identified below between the relationship of Tradable (those that compete with imports or are exports) and Non Tradable goods


 The Tax working Group said “There is a major hole in the tax base concerning the taxation of capital, which is manifest in high investment and low returns in the property market”; its effects are visually shown below.


New Zealand has ranked 170th out of 182 countries in Cumulative Current Account Deficit (see Wikipedia).

This is until 2008 and the picture has only got worse. This is not per capita as you can see so imagine the same result when our small population is taken into account.

tags: capital gains tax, current account deficit, housing bubble, tradable sector, monetary policy


1 Comment(s)

Alan Henderson - 05 August 2011 at 5:51 AM
You're right on the money of course Selwyn, but our political system as it stands is so dysfunctional that the only change is going to be for the worse.

Key isn't going to do anything and Goff isn't going to do enough.

For the first time in 50 years of voting I'll be using a big black pen to scrawl "None of the above" on my voting paper.

I'm beyond outraged. My advice to my grandchildren is: get out of New Zealand, it's a lost cause without a revolution.

Last modified: 5/08/2011 5:54:43 AM

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