Business organisations query carbon policy process

Published in the National Business Review of of 15 June 2007

Business organisations are using the government's policy on carbon emissions trading to test its commitment to robust policy analysis, regulatory impact statements and effective consultation.

Eight major organisations, Business New Zealand, the Chambers of Commerce, Federated Farmers, the Business Roundtable, the Road Transport Forum, the Major Electricity Users Group, the Wood Processors Association and the Greenhouse Coalition have written to the Minister of Energy, the Prime Minister and other ministers.

Their letter complains that with the detailed design of an emissions trading scheme already well underway, the government intended to consult affected parties at the same time as it was drafting legislation.

An officials' timetable showed six weeks had been allowed for this.

"This is not consultation in good faith. The time frame for developing, consulting on and implementing a policy of this significance to the New Zealand economy needs due process to be followed.

"Due process is specified in the Cabinet Manual and includes the requirement for a regulatory impact statement," the organisations' letter said.

Last week the Minister of Commence Lianne Dalziel said the government had an"absolute commitment to robust policy analysis, effective engagement with stakeholders and proposals for regulation only where there is a clear case to support that approach."

English slates KiwiSaver Two over original scheme

Published in the National Business Review of of 15 June 2007

Boosting retirement savings without also improving the economy was the wrong approach, National's Deputy Leader and finance spokesman Bill English told business leaders this week.

He said savings were important,, but the country's wellbeing was not all about preparing for retirement.

"We need a productive economy to invest in. We need to focus on growth ...and ensure there are plenty of growing businesses in New Zealand needing capital."

Praising the $1.2 billion of business tax cuts as "a good piece of policy", Mr English said KiwiSaver Mark Two had been forced upon Michael Cullen by circumstances.

"He, like me, has been sceptical about the use of incentives to boost savings, but he had to find way of dispersing the surplus.

"I'd have preferred to see the mark one version - the one without incentives - get up and running before it was turbocharged.

"Fiscally the mark two version is very expensive. It's going to take $1.1 billion out of households, and the fiscal cost to the government is $1.2 billion.

The update on KiwiSaver is forecast to be only 50%, and the Reserve Bank was people to draw down on term deposits to get into KiwiSaver.

The KiwiSaver scheme would not provide a large pool of capital, and would not lower the current account deficit.

The missing bits in the Budget

Published in the DominionPost on 29 May 2007

In its early days, the Labour led government talked about leading New Zealand back to the top half of the OECD in living standards.

How many times was the term 'living standards' (or standard of living) mentioned in Dr Cullen's budget? Not once.

The government used to talk about the innovation society and the knowledge economy. Innovation gets two mentions, both of them innocuous. The 'knowledge economy' is not mentioned.

"Prosperity"? One reference - to KiwiSaver and future retirees.

Growth is used seven times, but never given as a goal or objective.

Last year Ministers were talking up the new agenda of economic transformation. SOEs Minister Trevor Mallard was proposing that the government's own businesses could lead the way.

Now boosting savings is being touted as the way forward, and much of the budget publicity and analysis has centered on Kiwisaver and compulsory funding.

Certainly saving more will cut consumption and boost investment, but any reduction in demand for imports is not going to remove the current account deficit of $14.4 billion (December 2006 figures) very quickly.

More savings will also boost the pool of investment capital available. But that won't happen quickly either. Contributions to Kiwisaver start at one percent and move to a top rate of four percent, while Australians are paying nine percent already.

No action on tax effect on property prices

published in the National Business Review 25 May 2007

High income earners have good reason to buy rental properties

Finance Minister Michael Cullen's budget recognises a link between the tax system and the housing market, but he does not provide any solutions, other than more money for auditing of property transactions.

But two Westpac economists say high marginal rates of tax have pushed up property prices and held down rents as high income earners seek the tax relief that the government is refusing to give.

"Distortions in the tax system make it sensible for high income individuals to purchase rental property and rent it out to lower income individuals, with both parties gaining at the expense of the taxman," Westpac economists Brendan O'Donovan and Dominick Stephens say in a March bulletin.

Over the past five years house prices have doubled, but rents have increased by just 14%.

The two economists calculate that the change in the top tax rates in 1999 have pushed up property prices by 17% and at the same time have held down rents by about 8%.

Lower interest rates made mortgages cheaper, and property was bid up by about 20%.

"Together, tax rates and interest rates explain more than a third of the house price increase this decade," the economists say.

Dr Cullen's words tell the budget story

Development is the most popular, but where is 'exciting' or 'bold'?

One way of assessing a major initiative like a budget is to look at what words the author has used to describe their work.

So what words in common economic, political and commercial discourse did Michael Cullen use in his budget speech this year, and what does this tell us about his thinking?

'Growth' is used seven times, but always in a descriptive way. It is never a goal or a target.

'Productivity' is used five times; two references have specific content. There is $87.8 million in the Market Development Assistance Scheme "to boost exports and productivity" and $67 million to "support innovation and improve linkages", particularly in research and development efforts.

'Prosperity' is used only once, in relation to KiwiSaver and the expected happiness of future retirees.

The terms 'standard of living' and 'welfare' are not used at all. Neither is 'entrepreneur', and "knowledge economy' is not there either. There are only two references to 'innovation', both of them innocuous.

'Profits' and 'jobs' are not mentioned at all, and there is just one reference to 'employment'.

'Risk' is mentioned once in the contest of research and development expenditure, and 'return' in used only once in relation to a tax return.

'Market is used eight times; four times in relation to export markets or the Market Development Assistance Scheme.

Cut tax to slow property boom

Published in the DominionPost on 15 May 2007

Property prices remain stubbornly high and demand is still strong, despite regular predictions that the boom is over and constant warnings about the adverse economic effects of an overheated property market.

The Reserve Bank has raised interest rates yet again. Recently a levy on mortgage payments was proposed to deter investment in property. This was effectively a tax on borrowing. With the budget coming up this week, Dr Cullen is right to look at a tax solution, but if he is serious about taking the heat out of the property market, he should be cutting personal income tax rates.

Part of the demand for property reflects a middle class desire to avoid tax, because the current rates are regarded as unacceptably high.

In 2000 when the Labour led government raised the top marginal rate on personal income tax from 33 cents to 39 cents, it was a "temporary measure" which affected only 5 per cent of income earners. Eight years on, the tax is like the prefab class room at an overcrowded school. It's not about to go away anytime soon.

According to the Treasury's Key Facts, 12 per cent of taxpayers now earn more than $60 000 a year. That's 363 000 people, and given Dr Cullen's refusal to cut the top rate, or to raise the threshold, many of them are looking for legitimate and safe ways to avoid paying big dollops of tax each week.

Lions tour visitors impressed but market slips anyway

Published in the National Business Review of 25 May 2007

Effects of the 'walking, talking advocates for New Zealand' campaign didn't last

Did New Zealand's big push to impress UK rugby visitors during the 2005 Lions tour have any lasting effect?

The "Make Yourself 100% at home" campaign was designed to make the expected 25 000 rugby visitors into 'walking, talking advertisements for New Zealand'.

Two years on the tourist industry is divided about whether this ambitious goal was achieved or even attempted.

The numbers tell the story. In the year to March 2005 there were 297 799 visitors from the UK and Ireland. In the year to March 2007 there were 302 411arrivals from the UK and Ireland. That's a rise of just 1.5% over two years, only a bit better than half the rise of 2.9% in total visitors from all markets.

And that it includes the big spike of the tour itself - 29 000 visitors from the UK in May and June 2005. Now the numbers are going down: the latest figures show a drop of over 1% in arrivals in the 12 months to March 2007.

The major players, Tourism New Zealand, Air NZ and operators like Tourism Holdings all insist the market is very important and that New Zealand is working hard and doing well. A market with constant challenges is a recurring theme.

Pacific Blue coy on local service

Published in the National Business Review of 8 June 2007

Pacific Blue has given its strongest indication yet that it is not planning to start domestic services anytime soon.

Chief Executive John Bartlett told a Wellington Chamber of Commerce lunch that low cost carriers needed to see the right conditions in a market before entering.

Asked about Pacific Blue's domestic plans when he visited New Zealand in January, Sir Richard Branson said to "watch this space."

However in his speech Mr Bartlett recalled the history of airlines like Laker Airways that had moved from holiday charters to take on the traditional national carriers. "They were low fare rather than low cost."

The modern low cost carriers sought to avoid or recover all the costs they could. "The refrain of the low cost carrier is: we sell airplane rides for money."

Deregulation had made it possible for low cost carriers to succeed when low fare carriers had failed. Making fares affordable generated traffic.

He cited Pacific Blue's service to Samoa. "People now go home to Samoa twice a year rather than once, and students go home for the holidays more often."

Air New Zealand had responded to competitive pressures by setting up of Freedom Air to compete with the former Kiwi Express on trans tasman routes and on flights from secondary airports.

Hide bill looks set to fail

Published in the National Business Review of 8 June 2007

Rodney Hide's Regulatory Responsibility Bill is set to fail after a government minister indicated that Labour would probably not vote in favour of its going to a select committee.

Mr Hide's private member's bill was a hot topic at this week's Regulatory Evolution Summit in Wellington where the ACT Leader said he had the support of United Future and National.

"I believe I can get the Maori Party and the Greens but we won't know about Winston until the day (of the vote)".

Mr Hide said the Bill would require a report to be prepared on every piece of new legislation to state whether there was any infringement of property rights, whether compensation was proposed, on whether choices were circumscribed and on the option of doing nothing. Answers would be audited and existing legislation would be progressively reviewed.

Council of Trade Unions' economist Peter Conway countered by suggesting a Social Responsibility Bill to ask similar questions about the social and environmental impact of legislation.

Commerce Minister Lianne Dalziel said that the government was unlikely as a report from the Law Commission had described the bill as "inept and inapt in conception and design."

Mr Hide said although he didn't have everything "completely right, the framework is absolutely right."

Experts urge review of competition regime

ublished in the National Business Review of 8 June 2007

The regulation of competition and the practices of the bodies that administer the rules have come under fire at a conference in Wellington this week.

Alex Sundakov, the former director of the NZ Institute of Economic Research now with international consultancy Castalia, and Brent Leyton, the current NZIER director, both attacked the legislation and the practices of the Commerce and Electricity Commissions and the Telecommunications Commissioner.

Commerce Minister Lianne Dalziel said their criticisms reflected the concerns of the "big end of town" while the "small end" was much more concerned about the cumulative weight of compliance.

New Zealand had good regulatory thinking, Mr Sundakov said, but the conduct of regulatory agencies was a different matter.

"In the absence of clear legislative rules we have seen rules developed in the heat of battle. The (Commerce) Commission makes up regulatory rules in the context of individual cases and investigations.

He criticised the confused allocation of tasks between the Electricity Commission, the Commerce Commission and the complicated interplay between the Commerce Commission and the government in telecommunications.

"The Electricity Commission is independent but its independence can be withdrawn at any time, and there is a political override of decisions of the Telecommunications Commissioner."