Welcome to the NZX Blog
Two weeks ago David Skilling and I were at the World Economic Forum meeting in Taijin, China. We got to swap ideas with business, political leaders and thinkers from all over the world, and through that process it became ever clearer that the so-called financial crisis was moving very quickly to become a major issue in the real economies of the world: The US, Europe have already slowed and continue to do so, and Asia is certainly not immune.
It also become very clear that New Zealand’s economy has been carried along by dairy, and both on the supply side and the demand side the outlook is almost certain to see prices continue to weaken. Read the NZX Agrifax Dairy Report – September 2008. Combine this with New Zealand’s exposure to the financial crisis through weakness in the economies of our trading partners, and our susceptibility to credit rationing, and we saw huge risk for New Zealand.
On returning to New Zealand last week, we were both dismayed by the lack of recognition of what was happening. We talk about being part of the global economy – but you can’t just shut the door on the rest of the globe when you don’t like what you’re hearing. We were also struck by the inadequacy of the policy response to get us through this so that the downside risk is minimised and we take advantage of the real opportunities that we have.
Our joint view is that, under the policies currently on display, the New Zealand economy is heading for a painful belly flop that will leave us red and sore for a good decade. It need not be so.
Having complained to each other on the phone about the above, we decided we’d put our joint energies into something constructive: we did our best to pull some ideas together to start to shape a strategy for how New Zealand can best deal with what we’re facing.
So, we did. The results are available for you to see in the draft strategy on the NZX Blog post above.
I would love for as many people as possible to read the document, debate it, and improve it. Post your responses here, and lets see if we can get genuine public traction behind some bipartisan ideas, and for bipartisan action, on the stuff that really matters.
Best,
Mark
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I entirely agree. I was not hard if you studied the global markets and whatched the editorial on CNBC to see it all coming. The underlying information on many sites and blogs including Bloomberg and others made it clear that while new zealand sleep walked into an early recession the global markets dived into the abyss. It just seems that our political leaders are living in some dream land. Well the smacking has arrived so for all of us that whatch the markets into the early hours it comes as no surprise. How Dr Cullen didnt see it coming and how he must have known treasury figures would show nine years of deficits just shows that instead of planning a new economy smacking was on the agenda for the meeting. The smacking is here as its a whooper! More business plans are being draw up to move intangible assets out across the ditch as we speak.
At long last some tangible proposals to make a difference.
If only National could have embraced some of these, notwithstanding their desire not to offend labour leaning vote sector. The dead hand of labour has created a low income electorate by withholding business stimulus in the past 9 years. Along with the civil service sector, Labour has eastablished a captive voting block for itself.
Is it too late for Key/English to acknowledge the merit of some of these suggestions? Lack of strong vision by Key/English makes me despair of an opportunity about to be lost.
Both parties should endorse now a compulsory Kiwi Saver Scheme at 2% contributions by employee/employer and give tax credits to the low income who struggle to contribute. Then increasing the contributions over time as growth improves/allows. At least this would remove the anomalies and administrative difficulties.
I don’t think discouraging young Kiwis from travelling overseas is wise. Much to be gained from experience and expertise. Encouraging them back to an attractive working environment is better. Direct tax breaks to returnees probably unfair and temporary. Tax breaks, research writeoffs, and incentives to new businesses from overseas (entrenched somehow) will allow businesses to offer better pay and work environment to Kiwis thinking of returning.
A welcome and timely warning from Skilling/Weldon, thank you.
I agree with you 100%. As a 70 year old UK Chartered Accountant retired to New Zealand to be with my family I have lived through the 1970s stock market crash, and saw the FTSE fall to 100 at that time. I converted my pension fund to cash in July, and am grateful every day for that. My son in England has his pension fund in Iceland. To be specific, the essential priority is to defer provisional tax payments. With probable falling profits it is penal to expect businesses and indeed individuals to have to pay tax on last year’s income plus a percentage. Cash flow is vital for everyone, and the government can afford to hang on and wait. 100% depreciation was used in UK a few years ago and worked then, provided assets are identified and there is a tax claw back on sales of those assets which have been given the 100% allowance. I agree on the R & D tax credit. It is a mistake for National to cancel it without providing some relief to replace it. I am not sure about KiwCo. It smacks of more jobs for the boys and would need to be very carefully watched. I fully support the end of the housing tax relief for speculators. It is crazy that people have bought houses just to create tax losses, thereby helping to push the market up and make it harder to afford starter homes. I can’t see the failed history teacher coming up with anything useful, so it is up to National to look seriously at your proposals and publish their views without delay.
I am pleased Mr Burrows has commented as im sure many accountants would agree. But as family member of an accountant i am often amazed at how silent the accountants are and i dont understand why they have remained so quiet for so long. I think we all own a debt to Mr sheppard of the share holders association for his stirling work in speaking up. I wish the accountants of new zealand would speak up more often as they see the affects of silly policies on the balance sheets of business every year. We create more and more complex tax laws such as the capital gain tax on foriegn owned shares while perpuating no capital gains on housing. if there is no tax to pay on house sales and other capital then there should be no tax on business. IE if you allow people to buy and sell houses every two or three years with no tax then you are creating a huge structual imbalance and no wonder the reserve bank has to put up the interest rate becuase all the investing is in property! Oh please will someone get the structures right else we will all have to move offshore. There is no sense in keeping businesses here at this rate. So Mark is 100% correct else he will not have a sharemarket to look after and we will all have to move. If your business exports today you are being amiss not to have figured out where in the world to base yourself and just leave a branch office back here or in syndey.
I have to say that my first reaction was unprintable. The tax breaks for returnees leapt out of the page and bit my face.
What 12+ months ago was a skilled labour shortage inhibiting productivity, seems highly likely over the next 12-24 months to be increased unemployment as the economy slows down and companies start trimming jobs – even the skilled ones. Now you’re proposing to add expatriate job-seekers who are paying 10-20% less tax, which gives them an advantage in competition for a job – an employer can pay them less, and the expatriate still gets more money. Correct me if I’m wrong, but increased unemployment traditionally also creates downward pressure on wages, causing wages to stagnate while cost of living increases with inflation – currently quite high, even if petrol prices are coming down, and increasing for imported goods as the exchange rate settles at a more reasonable level for exporters. Only partially offsetting that cost increase is comparatively light tax relief, and very slowly reducing interest rates for home owners, depending on when their mortgage comes up for renewal.
I’m not an economist, so I can only conclude that I’m missing something. I’d be happy to hear what that is.
I feel that the incentives for businesses to relocate run similar risks, although I’m less able to articulate my resistance. Somewhere in there is a small voice saying “hang on a bit, that’s not very fair for all of the companies that have kept their business in NZ”.
On the other hand I’m bang alongside “compulsory KiwiSaver contributions and the elimination of the
tax biases that encourage speculative property investments”, and couldn’t agree more in that area. The “tax biases” should have been shut down years ago, when it could perhaps have been done in a more controlled fashion.
A couple of days ago I jotted down some ideas as my contribution to looking for answers although I never intended sharing them publicly. I explored the defintions of government/govern and although most of them talk about ‘to rule’ ‘to conduct the policy and affairs of’ ‘to carry out with authority’, the one that stands out is’ to carry out policys for the will/good of the people’I got to thinking that instead of Party leaders telling us what their policies are and therefore why we should vote for them, there should be groups of highly thought of people with integrity saying what needs
Thank goodness. New Zealand needs more of this kind of thing, not meaningless sound bites and rhetoric. Thank you so much. I will be telling all of my friends about this.
Leadership – Well done. Appropriate, timely, forward looking and opportunistic.
Broad Strategy – Supported in principle, as well as most of the detailed proposals.
Compulsory KiwiSaver – A challenge rather than a criticism. We need to ask what is wrong with financial assets and managed fund products that we have to propose or implement compulsion or incentive in NZ and internationally before consumers participate at an appropriate level. Making saving compulsory in funds that can collapse in value, as is currently happening, also creates a large moral hazard. The barriers to consumer participation must be valid, otherwise consumers would participate. There must be something that we can identify that can be changed to improve the value proposition for consumers. This needs to be explored. (Barriers that spring to mind include lack of financial literacy, over taxation, high fees, inadequate explanation at point of sale and over promising results.)
Regulation – In the interests of consumer protection, ever increasing regulation is being proposed (anti-money laundering) or imposed (Financial Advisers Act.) I believe that the point is now being reached that the regulation is precluding the consumer that most needs protection from participation, either because of cost or complexity. We need different solutions to deliver on the consumer protection goal – I still argue that a single effective and efficient consumer complaints and dispute resolution process is most likely to deliver to the objective, but the recent legislation proposes multiple bodies.
Regulation overseas – We also need to acknowledge that overseas regulation has been a major contributor to the world financial collapse, as well as all the other reasons being touted, with “the land of the free,” America, having one of the most highly regulated and tax favoured product economies in the world (Examples, the establishment of Fannie Mae and Freddie Mac, 401Ks, and tax free municipal bonds). We don’t want to end up there. These things helped create the distortion that led to excess.
Political Leadership – Your criticism of the lack of political leadership is valid. This crisis provides the excuse for radical change from a bold leader, similar to the circumstance recognised by the David Lange/Roger Douglas Labour government years ago. That is what we need again and I believe the electorate will recognise, accept and respond positively to such leadership at this time. Listening to comments around me, neither major party has yet presented a compelling story to the electorate, the “economy of truthfulness” of three leaders in recent times has severely damaged overall electoral trust, and many people are not yet certain who they will vote for. A bold leader may yet emerge, but it may be after the election when the opportunity to get a strong mandate has already passed. That will potentially limit the ability to make the required changes. What more can we do in the next 2-3 weeks to create the political environment for change and get the electorate to empower it?
I am writing to respond to your action plan as reported in Fran O’Sullivan’s Weekend Herald column.
1 Provisional Tax suspension. I think that this is not a very sensible plan because lulls businesses into not addressing financial pressures and their tax obligations in a timely manner. I presume that you are hoping that they will spend the money that would have otherwise gone as tax and thereby boost the economy. To me this is precisely the sort of unrealistic financial thinking that got us into this mess in the first place. What do you think is going to happen at the end of one or two years when the companies have to find the money for their tax, it is all spend and it is too late for them to adjust the way they run their businesses to reflect the changed economy? Wholesale business failures!!!
While it is a pain in the neck, the Provisional Tax system works well and does have some compensating factors. It does act as a form of saving that can compensate companies in lean years. It also has provisions where tax payers can have their provisional tax reviewed if their circumstances require this.
2 100% capital investment write off. Yes I cannot see much wrong with this. It will stimulate investment when we need it. The Government would obviously loose some tax take for a year or so. It would be interesting to see this costed.
3 20% capped tax rate for returning ex pats. I suspect that this will result in more people leaving NZ than returning. It would be viewed as very unfair by loyal NZ tax payers and
-increase the discontent of those considering leaving and make it more probable that they do so
-encourage the thought that “I might as well go overseas so that I can return and enjoy the low tax rate also”; especially given the comparatively low Australian dollar.
4 Two year tax holiday to companies coming to NZ to set up. Provisionally agree with some reservations and questions.
-How attractive is this? Is it likely that a company can establish a new operation in NZ and make a profit in it’s first two years? You may need to go for more than two years.
-Similar to point 3, this is rather unfair on loyal NZ companies, both existing and considering starting up here. They may be more inclined to go oversees if they believe that they are being treated unfairly.
5 Keeping the R&D tax credit.
What is Key thinking about!!
Good on you for trying to get some creative thinking going.
My personal view is that one of the biggest problems that we face is the absolutely ridiculous situation that the government (in the company of just about all western governments) has allowed to develop with respect to housing costs and the inevitable return to reality.
High housing costs have huge impact on
-social well being (I don’t know how a low socio economic South Auckland family can survive honestly and with a positive outlook)
-ridiculous house prices are having to paid for somewhere through the system by higher wages and salaries. Most of this money is going overseas as interest on foreign loans and is therefore a large drag on our economic efficiency. The values are totally artificial and will deflate, but we will be left with the very real debt. The government should have, and still should work hard at ensuring a highly efficient supply of land and home construction industry. It does so with vigour in just about every other economic sector for the reasons of keeping the country competitive. Its failure in this, the largest single cost to families and thereby the country, is highly significant.
Yours sincerely,
Chris Malcolm
While the effect some of the measures proposed could use a little debate the general thrust is excellent.
Our political ‘leaders’ appear lost in a time warp, bickering in the usual manner about trivia while the world financial crisis rages. The resulting storm is not yet upon us and early measures such as you propose could certainly help mitigate its’ worst effects.
Well done for bringing focus to the real issues voters should be considering and some remedies that could be effectively applied.
Hello Mark
First of all congratulations on the initiative for the preparation of this document.
By and large I concur with the needs to ensure that New Zealand is capable of meeting all the domestic and international needs for a growth economy.
It is frustrating that this crisis is the trigger for these thoughts which have been so obvious for so long.
There are one or two aspects of this which concern me.
1. The question of bringing ex-pats back home and the tax incentives proposed.
Are there the jobs available for everyone that might be attracted back?
Would the tax attraction be a temporary incentive and then off to Australia or elsewhere?
There are many areas of the financial and other sectors which are reducing staff at present and the same is true of Australia.
Is it wise to have similar people in similar jobs being treated differently?
2. The question of savings is an important one. However, you can’t have savings on the one hand and a paucity of investment opportunities on the other.
The current government seems philosophically opposed to asset sales so your Kiwico suggestion may be hard to promote and if there is a change that appears to not be an option in the short term. Whether it is Kiwico or a partial sale of SOE’s it is important that the range of investment options be increased or domestic savings will end up overseas (some will anyway). What is wrong for a government to propose a partial sale of asset and link it to a direct investment (hospitals, infrastructure for example)
3. The housing question. If ever there was a time to address the taxation anomalies it is now. Will the politicians have the courage to do this?
I hope we choose the swan dive.
Regards
Alan Moore
It’s great to be able to have this debate so contgrats to Mark and David for initiating this. It’s much harder to achieve this sort of discussion via the Political Parties (I know because I am involved in NP Policy consultation) because either the Caucus tries to shut this sort of discussion down, or you come up against vested interests.
There are lost of things we can do to get the country through this one, but one suggestion I have been making for a while, is a radical change to KiwiSaver. Basically, lets keep KiwiSaver, but improve it by winding up the SOE that runs it, stop putting taxpayers money into the “Cullen” fund (John Key, there’s an annual saving of $2Billion) and instead redirect the funds that are already mostly invested overseas into the KiwiSaver accounts of the taxpayers whose money was put into the Cullen fund over the last 7 years. This could easily be done by a relatively simple spreadsheet exercise allocating funds in proportion to individual taxpayers total tax paid in the period. Once the funds are in the KiwiSaver acconts, the proceeds would be available for investment in NZ through the respective approved investment organisations.
In this way, every taxpayer (even those who have not signed up for KiwiSaver) would have an account in their name, future socialist goverenments in power when the Cullen fund matures could not spend the money, and the longterm aspect of this fund would be preserved.
Excellent initiative – haven’t we been like a plane without radar for a long time now?
The opportunity to get things done has never been better. Attracting overseas establishment is what everyone else is doing, provisional tax payments could possibly be handled with affordable interest rates payable on extension,
development and infrastructure capital through NZ Super and ACC, S.O.E.’s pulling their weight – all good.
Be nice to give some medicine to that Kiwi habit of short term thinking and not taking ourselves seriously for the long term. We are here long term, we have got some exceptional solutions to offer the world but we do need to indentify what winning looks like.
Swan dive followed by a bright flightplan.
On a personal note, I would not have been able to truly appreciate the scale of the current crisis if I was not an ex-pat living in the United States. New Zealand’s policy response seems lukewarm at best and your paper was a welcome change. If there is anything that this current crisis underscores it is that we are now, more then ever in our financial history, completely interconnected – whether we want to be or not. Our (globally) homogenized banking system has ensured that and I support recent calls for a Bretton-Woods agreement for the 21st century.
As such, New Zealand’s response MUST be openly global and aggressive. It strikes me that the majority of your suggestions are basic economic economic development fundamentals – institutionalizing and expanding R&D credits should be a priority for any government to help New Zealand diversify its export portfolio and providing tax incentives for relocating business is a tried and true development strategy. Not that these aren’t good ideas – rather they are necessary so that New Zealand maintains a baseline level of competitiveness relative to other OECD countries.
Increased opportunities for New Zealand investment by the New Zealand public – whether through municipal bonds or compulsory savings and a coordinated approach to government asset management will better manage New Zealand’s exposure to global risk. I also believe that the time is ripe to incentivize overseas firms, especially highly portable firms (we joke in the area that we live in that their product must be Fed-Ex-able), to relocate to New Zealand not only through economic incentives but also based on an outstanding quality of life. New Zealand will increasingly be viewed as a green-utopia by many people seeking a quiet, simple life – in times of crises a direct and agressive economic incentive may be just the straw to break the camel’s back. Perhaps in the short term we will experience pressure on jobs and resentment from long-term residents – but the payoff, especially in already identified industry clusters, will far outweigh the tax loss over the long run.
Give me a reason to move home!
Essentially, the problem is that money has been out of control, and has been engineered into products by young people that look at numbers rather than $. If you lend money to people that cannot pay you back then no matter how it is packaged it will not work. Any banker, or share investor, with experience, will look at the ability to pay rather than a security that has been inflated by the money f—–s on Wall Street. I respectfully suggest that rather than providing advice, you should look at the members of the exchange you represent, the level of knowledge, quality of advice, and I would suggest, be humble.
Kind regards
Andy Cutler
This satire was sent to me this weekend. It was originally written in an EU language, but I thought it was so typical for the New Zealand disaster that I re-wrote it in English. It is a satire, but it illustrates the underlying causes of the current financial crises in New Zealand quite well. The causes are not really financial at all and remember, we can never solve a problem by applying the same process of thinking as we did when we created it. (Albert Einstein). We can never solve the financial crises by re-shuffling the finance sector alone.
©—————————-©
The Kiwi business model.
New Zealand decided to challenge China in a rowing contest with two teams of eight people each. China accepted. Both teams trained hard and reached top condition.
The Chinese won with one kilometre. The Kiwis mood was somber and droopy and at the bottom.
The top Kiwi leadership demanded a rematch, and Chinese accepted.
The Kiwi leadership now displayed considerable capabilities and accomplishment. They appointed a well known management consultant with the top professional team money could by. The professional accountants were to take time off from doing the books and their auditing work. This was important. Money was no object. Surely, New Zealand’s top profession would solve the problem.
After several months of careful extensive analyses, deliberation and consideration, the highly charged team arrived at the conclusion that the underlying reason for the failure was that the Chinese had seven people rowing and one steering, while the Kiwis had one man rowing and seven steering.
This was a crisis situation, and the top leadership spared no efforts to get it right. Too many people were steering, so they made dramatic and immediate changes to the structure of the team.
Only four team members were now allowed to steer, two top accountants were appointed as over-helmsmen to oversee their performance, and one retired court judge was appointed as helmsman-director to oversee the performance of the over-helmsmen. Surely such a heavy professional team would make the right difference.
It did make a difference. This time the Chinese won by 2 Kilometer.
The rower was subsequently fired with the motivation of underperforming. However the management consultant, the four helmsmen the two over-helmsmen, and the helmsman-director were all awarded generous bonuses and all appointed Super-Kiwis and assured they were World Class New Zealanders.
The management consultant worked through the problem again and came to the conclusion that the strategy and tactics had been right. The problem must be different and material, so they recommended developing a new boat, to invent something new using Kiwi ingenuity.
We are awaiting the outcome of the next race with enthusiasm and excitement.
©—————————-©
Satire aside, take a step backwards, a big one, pretend you are the man in the moon, take a look. We can never change the history, but we can change the future, but we can learn from the history. Why did this happen, and why did earlier countries as Germany, Sweden, Switzerland, USA and nowadays China and India mange to develop true wealth, while New Zealand failed. What is the difference?
The difference is in whom and what competencies are running our companies and business to produce wealth, real wealth.
Today in China and India, and earlier in the other countries, the people in charge in businesses were engineers, scientists and entrepreneurs, and they created real wealth. They were supported from the back room by a finance system run by accountants. Some banks even had engineers running them, as they understood the customers. 85% to 99% of management and directors were engineers or scientists or entrepreneurs.
Today that finance system has moved to take a totalitarian control, the wealth creators have been replaced by accountants and lawyers and the very word “business” has been revalued to become, “talk down the price – borrow cheap money – buy – talk up the price – sell – pay back the loans” with no value created. Wow – we made a huge profit! The back room financial accountants are now appointing and controlling the board and the management, and they pick people of their own kind, clan, and members of their own cult.
In China just about every manager, board member, and officials from the president and down, are engineers. They create value.
In New Zealand just about everyone are accountants, they create no value, just make it temporarily look better.
The real problem is not in the financial system, at least not alone, but in that the financial system and its people have taken control of the business, redefined it from value creation to a cancerous system of speculation, conjecture, rumor, guesswork, supposition.
The share market and real estate market is not driven by its value, but by how much the price can be talked up in the future. This is driven by an invisible collusion everyone knows about but nobody want to talk about of accountants, lawyers, courts, valuers, spin doctors, sales people, and so on.
Competencies are the core of the problem, not financial systems alone. Competencies in the right place at the right time. The most needed and most scare competence in New Zealand is “international competence”; here defined as a person who have learned and speaks at least one or two foreign languages fluently other than his mother tongue, understand those foreign cultures, with five to ten years of experience from living and working for a local company outside the English language culture sphere in a different culture, and in the case of China, is an engineer best over 60 years old and permanently resident in China. Age means respect and trust in China. The lack of the right competencies were surely the root of international failures as Air New Zealand/Ansett, AFFCO, Fonterra, Fletcher Challenge, Fernz, Lion Nathan, Richina, etc. It certainly does show up in our balance of trade.
We have to find ways of making the changes back to a system that creates value and export. I will put forward some suggestions in a separate paper.
Bert
In Chongqing China
October 2008
Perhaps the most exciting thing about this initiative is the relative youth of the people involved.
For many years I’ve been wondering, “Where are the young Alan Gibbses, Doug Myers, Ron Trotters and Peter Shirtcliffes?
Where is the next generation of business stars with spare change who both can and want to rally the nation to a better understanding of what might be called common sense, if only it were common.
We’ve badly needed some new blood to pick up the baton and refine and repackage an old idea for a new generation.
If Lloyd Morrison, Mark Weldon and David Skilling are those people, that’s very exciting.
How successful you are will depend on how crisply you communicate the message.
Will you do what most of your predecessors have done and overcomplicate everything beyond the capacity of the vast majority to even WANT to understand?
Or will you put aside the natural human desire to want to be seen as sophisticated and convert your arguments into the language and images of the street?
There are some brilliant think tanks out there. But they talk in business-speak to a tiny fraction of the population.
Most people just can’t join the dots – and give up trying.
What we need is to bolt a Teach Tank on to the side of these think tanks and groups like yours.
A Teach Tank’s sole job would be to distill the think tanks’ wise messages into short words and pictures that the other 99% of us bozos can understand and, importantly, enjoy.
The goal of the Teach Tank would be to infect New Zealand with economic literacy and a better grasp of public policy.
Once that’s achieved, then you’ll be able to create the groundswell of enthusiasm that you desire for your ambitious goal.
(Call it a SMART goal, by the way: Specific, Measurable, Achievable, Right for New Zealand and Time-bound.)
Of course, your idea is not new.
I remember sitting bolt upright at an ACT conference in Christchurch when Peter Shirtcliffe put out a similar call for a country to have a goal.
I’d never heard of such a thing outside of the communist world. But it made instant sense.
His default suggestion was 10th in the OECD by 2010.
That was back in about 2001, maybe earlier.
For a short time, Helen Clark even picked up on the idea, only aiming for a less-ambitious 15th and setting no target date.
Then she dropped the notion when something else dropped: a penny.
She realised that her policies were destined to take us in exactly the opposite direction.
And how right she was about that!
Now, instead of hurdling country after country in a disciplined dash from 20th to 10th, we’re now 22nd in the OECD and 38th in the world.
And falling.
If we were to accept Australia’s founding invitation and become one of their states, we’d be the poorest – poorer than Tasmania.
If we were to get wrapped up in Obamamania and become the 51st state of the USA, that’s where we’d be for wealth also – poorer than Mississippi.
The opportunity cost of successive gutless governments failing to heed the Peter Shirtcliffes and the Lloyd Morrisons has been high.
I’ve seen a lot of politicians in my work as an advertising person for Labour, National and ACT.
Inspired by Peter Shirtcliffe, I suggested to the Nats that they set a SMART goal for New Zealand and campaign on it.
They found the idea terrifying, lest they have to be accountable for achieving it.
I’ve noticed that since then they have set some goals – ones with deadlines that expire long after the timorous goalsetters have left the building – or, in the case of reducing greenhouse emissions to 50% of 1990 levels by 2050, possibly even the planet.
I suggested the same idea to ACT and the reception couldn’t have been more different. Goalsetting was nothing new to Roger Douglas in particular, and he was hugely receptive.
In fact, I think he was then well advanced on setting his own goal, which turned out to be “Beat Australia by 2020.”
ACT’s 20 Point Plan is the fleshing out of the goal with specific policies and timetables to achieve it.
Outside of ACT, I don’t have any faith in New Zealand’s politicians to advance your cause one inch.
It will have to be left to the business community, who know a thing or two about setting and being accountable for achieving goals.
If you guys will stump up the money, I’d love to set up the Teach Tank to boil the issues down for the public. I’ve already spoken about how we might go about this to a couple of Business Roundtable CEO Forums.
Having said all that, I do love your brilliant distillation of our impending slide past Botswana and Kazakhstan into ‘Beaten by Borat’.
My goal would be to achieve a similar impact with every issue. It won’t be easy, but I promise you it will be fun!
I suppose it is difficult, if not impossible, in the current climate for a discussion page like this to not descend into the varying political opinions of the day, or for people to take the opportunity to decry their own personal circumstances as if they were not at the helm of their destiny at the time!
At the risk of addressing the question at hand I would like to congratulate messers Weldon and Skilling on their thoughtful analysis and proposed strategies for the future. I support the majority of what they propose and only have a few questions over how some aspects will play out over time. However as inaction is very clearly not now, or ever, an option I would support following these suggestions while maintaining flexibility to adapt as results / circumstances emerge.
There is one area where I do wish to make a suggestion which is in the proposed area of lower corporate tax rates for relocating companies. As correctly stated companies in the weightless economy are relatively mobile and are well suited to operating without the tryanny of distance faced by NZ’s geographic location. However just as they are easily moved here they are equally easy to move away and therefore the motivation to remain must be sustained. If their lower initial tax rate is not packaged with a medium to long term policy for overall corporate tax reduction there will be little incentive for them or existing companies to maintain their base in NZ. I would support an additional incentive of corporate tax reduction aimed at growing the overall corporate tax base and thereby the total tax revenue. Ideally I would also look towards a incentivised tax rebate for export revenues with a view to redressing the balance of trade towards NZ as a Net Exporter.
Once again thank you for thought provoking paper.
Ken makes a point on how tax could assist the weightless economy.
Maybe consideration could also be given to offsetting taxes.
I once suggested the imposing of a tax on assets that could be reduced or eliminated where the income tax against earnings was already being paid. The aim was to penalise holding assets that were not producing adequate income e.g. bare land
As to the weightless economy, if sufficient taxes of various types (gst, income tax paid by employees, local body rates and even notional contributions by way of business overheads within NZ) met a predetermined level then the company tax could be zero but perhaps only when a percentage of the capital base is owned by locals.
A company like Endace which is near “weightless” was forced to go for a UK listing because it would not have been appreciated by NZ based investors. Very few locals other than the founding shareholders have therefore seen the results that have made this company almost immune to the downturn.
offsubject:
National should take the bull (bear?) by the horns, and rename kiwisaver – KEY WI SAVER!
To: Mark Weldon and David Skilling
Your discussion paper is timely, you can be congratulated for bringing forward major issues governments should have long since been promoting.
As I understand it, your view point is twofold, ‘firstly how do we get New Zealand through this present financial and economic crisis and secondly beyond that how we move up the OECD GDP per capita scale’ Your short term ideas resonate but the longer term may need a significantly different approach.
You assume business as usual, more population, more economic growth and your solutions reflect that. That was the successful business model of the past couple of centuries but things are now in transition. The simple growth model works in an unrestrained environment, when you start to impose limits, a different pardigram applies. We are on the cusp of change where continuous growth in a finite world is no longer a viable concept. The required solution is far more complex. This is not a ‘green’ (of which I am not one) versus ‘business’ model, its just a fact of life as we move deeper into the twenty first century, where ever more limits lie in wait. Change requires time and your ideas will enhance New Zealand’s well being in the short term and provide essential space for more fundamental transition. The more important changes to be addressed must centre on so far untouchable seboliths – population, growth, lifestyle.
How should New Zealand respond to a fuel and carbon constrained world? Anybody who thinks we can decarbonise our existing life style and continue with untrammelled growth has clearly not crunched the numbers. Life will have to change. Just for starters take our two largest earners animals and air travel these two alone present quite some problem compared to the rather simple possibility of a renewable electric supply. We will not, in all probability, be able to fix the animal emission problem without reducing capacity and we will not fix air travel emissions (or fuel cost) by growing berries in Africa, even without growth. Fundamental change will be required and you do not address therefore the longer term critical issues.
Cheers – Derek V
Derek Vance – Would not an all-inclusive, (more widespread) and higher savings & investment rate in relation to personal consumption, be the realistic and effective answer to your “fundamental change” as a long term need? Your comments one way or the other, would be helpful for a consensus to emerge, on which actions can be initiated.