Rising to challenges, now

The world has always been changing, but in the last couple hundred years it has changed enormously, and the rate of change is increasing. Somehow we have to adapt to these changes without stuffing up the economy or the planet.

Rod Oram (Newsroom):  Be bold to thrive in a changing world

As it happened, 1980 was also the year we Kiwis began to realise our tried and true economic orthodoxies were failing us. So, we made radical changes in that decade, which helped us prosper in the following two.

This year we must make even bigger decisions about our economy, society, environment and international relations. But the orthodoxies we learnt in the 1980s and 90s continue to largely define our debates today. Thus, we believe some tweaks to business as usual will keep us going.

Yet evidence from around the world shows us the present, let alone the future, is no approximate continuation of the past. Economies are stagnating, politics are polarising, societies are shattering and environments are degrading. Only fundamental changes will turn those around. Any nation failing to respond constructively will be far worse off.

Social change has been pronounced too. We’re less conservative and more ambitious; we’re more ethnically diverse, yet more confident in our ethnicities and our Treaty relationships; and MMP has made our politics more representative and our governments and policies broader-based, and in some ways more effective.

We’ve considerably degraded our ecosystems, as Environment Aotearoa 2015, the Government’s first comprehensive report across land, fresh water, air and marine domains showed us. Many measures continue to deteriorate, subsequent updates confirm.

The world keeps changing. We have little influence on those changes, so New Zealand has to try to adapt to those changes.

Resolving the big debates

Setting us on the right course will take innumerable initiatives by individuals and myriad strategies by organisations, with the help of many key policies by Government. In turn, effective policies are best shaped by rigorous, broad and informed debate involving all the people affected by them.

We need urgent resolution of many of those debates. Here are snapshots of six of them:

Capital gains tax:

Any economy is distorted if one source of wealth generation is favoured over others. In our case, the lack of tax on most capital gains feeds the housing market, starves business investment and disadvantages wage earners.

Fair pay agreements:

Our businesses and their employees need to become far more sophisticated and flexible so they can keep up with, or better, exploit warp-speed changes of business skills, technology and markets. A fair pay agreement is a bottom line in a sector which encourages employers and employees to be ambitious.Good companies and their people will far excel the low bottom line of a fair pay agreement.

Wellbeing budget:

In May our government will announce its first cut at a Wellbeing Budget, based on the Living Standards Framework Treasury has been developing since 2011. There’s a fair measure of support for this from some business leaders.

No doubt, though, this partial and rather simplistic first version will be criticised as being far too complicated, a distraction from pure economic measures, and an unrealistic attempt to measure the unmeasurable.

All good progress is hard.

Zero Carbon Act:

To tackle our monumental challenges of climate change and related aspects of unsustainability we need a very long-term goal for drastically cutting greenhouse gasses, a system for setting interim targets and a way to measure our progress towards them.

My column last week described the unassailable logic of this and the great benefits other countries are reaping from it.

Resource management reforms:

When we passed our Resource Management Act in 1991 it was world-leading for its twin goals of promoting economic development while protecting the environment. Many amendments since have improved it in some respects and hindered it in others. Overall, though, it has failed to adequately deliver on either ambition.

Given our vastly increased economic activity and the resulting escalation of demands we’ve put on our environment in the past almost 30 years, further attempts to modify the RMA simply won’t work.

…we need a fundamental redesign.

Relations with China:

China has changed hugely over the past decade. Its economic scale and technological prowess, and its global influence and sense of power have grown dramatically. Yet, it has become more authoritarian in political and social terms, while reasserting the clout of state-owned or influenced corporates over private enterprises.

Consequently, economic and political tensions between China and the US, EU and many other countries are escalating fast.

Now and for evermore we need to be very clear what our values are and who we share them with; if that causes some slowdown in our growing ties with China that will help us from becoming too dependent on China; that in turn will make us less vulnerable to adverse pressures from it and will help preserve our options and resilience.

The first five sound like a pro-Government manifesto. China is a problem the Government has in part created and has to find a way of dealing with.

Housing is barely touched on under CGT and not even mentioned under the RMA.

Rising to all of the challenges above, and many more, is utterly daunting. If we are so timid as to believe tweaking business as usual will get us there, we’ll fail. But if we boldly embrace the wonderful opportunities for us in this fast-changing world, we’ll succeed.

So if we do what Oram and the Government says they want to do we should be good.

Leave a comment

35 Comments

  1. alloytoo

     /  18th February 2019

    Fairness in taxation is a red herring.

    We tax the productive to redistribute to the less productive (or non-productive), this isn’t fair, but we do so because it is:

    a) practicable
    b) contributes to social cohesion.

    (b) is why we do it and (a) is largely how we do it.

    If we accept that redistributable taxation is acceptable, not fair, acceptable then it behooves us to do so with the least amount of cost and or disruption. (It also behooves us to spend the funds wisely, but this government isn’t very wise about that apparently)

    This is where CGT falls down, it is overly complicated and expensive to administer for both the taxpayer and the IRD, and the politically proposed exemptions will only add to that.

    In addition, the following issues talk to the fairness of the tax:

    1. You are taxing assets purchased with income that was already taxed, hard not to argue double taxation.
    2. You are taxing inflation.
    3. The proposals ring fence losses, why should that taxpayer take all the risk?

    Which brings us to the fact that it’s a tax revenue stream far more subject market crashes/windfalls.

    This makes it almost impossible to make CGT revenue neutral without huge adjustments to PAYE and/or GST year on year, thereby adding to those taxes administrative and compliance costs.

    Anyway, revenue neutral is also a huge big red herring.

    Revenue neutral does not mean tax neutral.

    In order to implement, administer and ensure compliance for their “Revenue Neutral” tax, the government will need to extract more tax from the economy IE: From taxpayers wallets.

    All of this additional cost in taxes and compliance just so the government can extract the same amount of usable income from the same people who are paying the existing tax bill anyway.

    Stupid ideologically driven idea.

    Reply
    • Blazer

       /  18th February 2019

      why do tax havens exist?

      Reply
      • alloytoo

         /  18th February 2019

        Supply and demand.

        Reply
        • Blazer

           /  18th February 2019

          what is the supply side logic?

          Reply
          • alloytoo

             /  18th February 2019

            That the tax that is sacrificed is compensated through other economic activity which will occur as a result.

            Reply
            • Blazer

               /  18th February 2019

              so moving vast sums of money offshore out of the tax mans grasp….increases economic activity…in your world!

              Wow ,what ..genius.🐱‍🚀

    • Duker

       /  18th February 2019

      Taxing inflation ? I understand Australian CGT discounts for inflation – well the CPI version anyway- and is likely to be adopted here. Same goes for different classes of capital gains.
      Shares , property , collectibles will all have different accounting so that rises or loses cant be traded off against the other. ie Loss on collectibles can be only be used against gains on collectibles, before tax is paid.

      Dont see how CGT is complicated beyond most that have investment/second homes properties. Plenty run through complicated schemes to extract tax deductions for carpets and hot water cylinder and stoves for minimal amounts. Same goes for taxes on company owned cars used for private purposes.

      Reply
      • alloytoo

         /  18th February 2019

        @Duker “taxing inflation ? I understand Australian CGT discounts for inflation – well the CPI version anyway- and is likely to be adopted here.”

        How is it fair to index CGT to CPI when housing price inflation may have very little relationship to CPI.

        Auckland is a great example of that. Supply has been artificially constrained by Auckland council and the RMA, as a result house inflation has massively outpaced the CPI and wage growth.

        There is very little real capital gain as all house prices have risen.

        @D”Same goes for different classes of capital gains.
        Shares , property , collectibles will all have different accounting so that rises or loses cant be traded off against the other. ie Loss on collectibles can be only be used against gains on collectibles, before tax is paid.”

        But is this fair? Sure if you’re a trader in such commodities you’re probably going to have numerous transactions to offset your loss against, but then traders are already caught in the tax net.

        Is it fair to do it to mom and pop investor. To them it’s just one pool of cash and chances are disposal is being triggered by a change of fortunes so that they will never be in a position to offset said losses. Can the loss be offset against the dead granny tax accruing on their estate?

        @D” Dont see how CGT is complicated beyond most that have investment/second homes properties. Plenty run through complicated schemes to extract tax deductions for carpets and hot water cylinder and stoves for minimal amounts.”

        I think you’ll find such maintenance costs are an expense in the generation of rental income. I don’t believe you can rent out a property if the hot water cylinder isn’t working.

        @D” Same goes for taxes on company owned cars used for private purposes.”

        Administered by the company’s administration department and in our case automated with GPS tracking.

        Now you can GPS track a house, but I don’t see the point.

        You have raised an interesting point however, if the supposed capital gain is to be taxed, surely the maintenance costs of said property (assuming they’re not deducted elsewhere) need to be deducted from the capital gains? (and that would IMHO include rates).

        Reply
        • Blazer

           /  18th February 2019

          ‘ house inflation has massively outpaced the CPI and wage growth.

          There is very little real capital gain as all house prices have risen.!!

          logic and you are clearly…strangers!🤦‍♂️

          Reply
        • Duker

           /  18th February 2019

          Supply isn’t constrained by Council….there is plenty of land zoned residential , just it’s locked up by land bankers who don’t have the money to subdivide , a very capital intensive situation , and if even if you can afford it, the finished section sit vacant because while nominally sold to rats and mice franchise builders very little cash is forthcoming to repay the development loans until a house is completed.

          Nationals one good idea ,the SHA scheme even fast tracked consent of the zoned residential land into a development proposal, only a small proportion proceeded to the section construction stage as once again the land bankers used it to buy and flip land with consents. When I worked in this area, we dealt with developers like this and advice was always get the consents and sell on for others to try the construction game and it’s risks .
          N Z just doesn’t have the large builders who can take a green fields site and turn it into houses, a mix of ready to move in and buy off the plans.All cheaper construction costs when the volume is up. Fletcher’s are the only ones doing it and they target mid to upper range homes, not the first home guyers

          Reply
          • Alan Wilkinson

             /  19th February 2019

            Obviously you were part of the system that makes development risky and costly. As I had deduced.

            Reply
  2. Finbaar Rustle

     /  18th February 2019

    Thank goodness we have a Labour Government.
    Two terms is essential and 3 terms is preferable.
    The 2 term Lange Gov’t achieved enormous progress
    and the Ardern Peters Gov’t can do the same for this generation and the next.

    Reply
  3. Blazer

     /  18th February 2019

    ‘The 2 term Lange Gov’t achieved enormous progress’!!!

    like?

    Reply
  4. Duker

     /  18th February 2019

    PG couldnt quite understand your problems with Orams forward looking analysis.
    That it wasnt running national party talking points of doom and gloom, but they use Hamish Rutherford for those sort of stories.

    At least it wasnt about Orams favourite kicking ball, Fonterra . I think he lost his job at Sunday Times because of complaints from the ‘big end of town’ like Fonterra

    As for China, Key had his problems with exports stopped at border -while he had his head in the clouds- too. I think that was over our ‘investigation’ of Chinas steel dumping.
    You have to give Trump credit for taking China on where others were very timid, but he could afford to as their imports from China far outweigh exports ( which have taken a hit , eg soyabeans)

    Reply
    • Alan Wilkinson

       /  18th February 2019

      Oram has a big pontificating mouth and little understanding of anything. Waste of time listening to him.

      Reply
    • High Flying Duck

       /  18th February 2019

      I’ve always thought of Rod Oram as NZ’s Paul Krugman. Sounds great and speaks with pompous self regard but is generally completely wrong about things.

      I rarely read him, but he’s often on Larry Williams and putting a contrary viewpoint which generally doesn’t pan out. That said, I don’t keep notes so can’t give specifics.

      However Bob Jones put is very well:

      “New Zealand’s best-known economic doomsdayists are the articulate Rod Oram and Bernard Hickey, both serious Mintoitus sufferers. Life for them must be a living hell, always only seeing the dark side and blind to the overwhelming positives everywhere. Once Bernard and Rod would have received prefrontal lobotomies to brighten them up but those procedures became discredited. Now it’s Prozac although a bottle or two of red each day would also do the trick and they would henceforth see the world in its happier, more positive side.”

      Reply
      • Blazer

         /  18th February 2019

        Yes Jones was a big advocate of ‘positivity’..so long as there is an earn in it for him….RJI…a wonderful case study.

        Reply
        • Duker

           /  18th February 2019

          Jones was happy to go to court using his high priced lawyer friends when he wanted to get out of a contract…..based on some legal taniwhas such as the perimeter wall beams were a hands width “too deep” and such like. This meant that his contract to buy the building was null and void.

          Reply
  5. Alan Wilkinson

     /  18th February 2019

    Tax when you earn, tax when you save and tax when you spend. Useful idiots like John Roughan are delighted. Stalin would have loved him

    Reply
  6. Blazer

     /  19th February 2019

    @Al…wrong cause…nothing to do with ‘hitting landlords’..you really are a pathetic individual.

    ‘It also appears that no quick end is in sight as population growth and a shortage of new houses are behind the record rents, analysts CoreLogic warn.’

    Reply
    • Alan Wilkinson

       /  19th February 2019

      If the cap fits, wear it, B. I’ve explained to you many times how getting landlords out of the market reduces the number of new houses for a growing population. Meat head or don’t-want-to-know is the cause.

      Reply
      • Blazer

         /  19th February 2019

        once again from your link…read it..

        ‘It also appears that no quick end is in sight as population growth and a shortage of new houses are behind the record rents, analysts CoreLogic warn.’

        Reply
        • Alan Wilkinson

           /  19th February 2019

          Half-wit: CoreLogic head of research Nick Goodall said the rental demand was driven by continued strong population growth and the fact “we are not building enough properties to keep up with that”.
          and
          “The expected loss of tax breaks for landlords could also see the number of rental properties drop, as investors decide that it is better to withdraw from the market,”

          Read yourself.

          Reply

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