Economics

Should this man teach economics?

Peter Lyons teaches economics at Saint Peter’s College in Epsom and has written several economics texts.

His article for the Herald started like this

On Monday I made several thousand dollars on paper. The share prices of electricity companies surged following the election.

If I had sold my holdings I would pay no tax on my gains because I am an investor rather than a trader.

Meanwhile a worker who spent the day toiling in a warehouse or factory might earn $15 per hour and pay a marginal tax rate of 17.5 per cent. I am a capitalist with a small c.

…This is the growing divide that is playing out in New Zealand and other Western economies. Wealth generally creates more wealth. This is not an expression of middle-class guilt or angst. I am an economist and see the world in terms of efficiency and equity.

Now, I’m not an economics teacher, but that sets off red flags to me.   Read more »

Using tax cuts to revive the economy – How the poms see NZ

The opposition likes to talk down the economy and the government, yet New Zealand has recovered faster than the rest of the world from the global financial crisis, without the need to slash and burn.

Our economy is the envy of the world.

Even the Poms see that:

In New Zealand, John Key’s National Party romped home to victory on a platform of cutting taxes and balancing the budget, trouncing a Labour opposition that promised to put up taxes. Slashing the top rate of tax has revived the economy, and been rewarded with electoral success as well. True, there are lots of differences between New Zealand and this country. And yet the truth is, there are a fair few similarities as well – and if tax cuts can work there, they can work here.

For a small place a long way from anywhere, New Zealand has a fine history of leading the way with radical experiments in economics. While we were battling over Thatcherism, and the Americans were debating Reagan-omics, the Kiwis had “Rogernomics”, created by the Labour finance minister Roger Douglas. What had been a very 1970s, state-dominated mixed economy was swiftly transformed under Douglas into a laboratory for free market ideas. Financial markets were deregulated, the money supply was brought under tight control, the currency was floated, and industries were privatised. It was a mix that was to become orthodoxy by the 1990s, but Douglas was implementing it while our Labour Party was still planning to nationalise the top 100 companies.

Now it is doing it again – except this time without any encouragement from the US or the UK. Ever since the financial crash of 2008, even centre-Right governments have followed a very narrow path, buying into high taxes, and near-zero interest rates, and allowing budget deficits to balloon, even when financed by printed money, to keep the economy afloat. No one has strayed far from the orthodoxy. Except, that is, New Zealand.

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Is it really too hard for people to bother to feed their kids?

Last night in the debate David Cunliffe delivered a sermon about starving children and how was the messiah who could deliver them from starvation.

He ignored the fact that Labour was in government for 9 years before National’s 6 years and that it is doubtful that so-called child poverty is entirely the fault of National.

There is a letter to the editor in the Herald this morning that looks into these so-called starving children that their parents can’t afford to feed.

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Pimping the poor but not telling the truth

I see that the Fairfax newspaper North Shore Times is pimping the poor again.

Father of two ‘Ofa Ta’ufo’ou can’t spend more than $100 a week to feed his family.

That’s breakfast, lunch, dinner, snacks, drinks – the works. Any more and the Birkdale resident breaks the household budget.

The 43-year-old works “like an animal” for at least 40 hours a week and still struggles to make ends meet.

“At the moment I can’t afford to take my girls to the movies. So I have to ask: Who has failed my family? The system has.

“And I’m not the only one struggling. A lot of people in the community can’t function as a family because of their finances.”

The community worker says the problem is nationwide and something must be done.

“We need to push people in power to do something about the poverty in this country. People are working like animals just so they can pay the basics.”

Ta’ufo’ou said savings is not a word in his vocabulary.

“I work so hard and can’t save any of it. My wife and I budget every single cent.”

Their combined fortnightly income is $2000, nearly half of which is spent on rent.

Humans should live in dignity, he said.

“This is a human rights issue. Everyone deserves to live like a human instead of spending all their time worrying about money.”

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Herald editorial slams Labour’s health bribe

Another day, another poorly poorly designed policy although this one is just a straight out bribe to rip the votes away from Winston First.

People are seeing Labour’s cynical health policy for what it is, a bribe, with money the government doesn’t even have.

When policymakers in the modern world worry about the cost to future taxpayers of ageing populations, pensions are only part of it. Healthcare also contributes to the bill. As is always evident in doctors’ waiting rooms, older people are heavy users of health services. But it is not just their number that is increasing as the postwar baby boom moves into retirement; advances in the care and treatment of organ deterioration are rapidly extending the human lifespan. Welcome and wondrous as they are, the treatments come at ever increasing cost to a decreasing ratio of working taxpayers.

For that reason, younger voters ought to ask hard questions of the Labour Party’s election promise to provide free primary healthcare for everyone over 65. The first question to ask is, how many of them need it? Some with chronic conditions may struggle to afford a fee for the frequent visits they need, but these days general practices are funded for the needs of a range of enrolled patients and doctors can vary their charges. Labour proposes to replace doctors’ discretion with free consultations and medicines to the over-65s regardless of their ability to pay.

It would give the elderly the same benefits provided to children up to age 13 in this year’s Budget, which Labour endorses. It would add pregnant women to the free list too, for any medical attention they might need in addition to the prenatal care that is already free. Not all parents of children under 13, or expectant mothers, need these benefits either. Many can well afford to pay a fee. But at least a case can be made in generational equity for children and young parents. Not so, the older generation.

Labour is offering free doctors and medicines to a generation that grew up in a welfare state, attended university at a fraction of the cost faced by their children, bought houses at lower relative prices, had their top income tax rates reduced by half early in their working years and enjoyed galloping house price inflation in their peak earning period.

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Labour finds some bludgers it doesn’t want to give more money to

Labour usually think they can win power by giving away more of other peoples money.

They try to out bid National to win votes. Usually chucking mountains of cash and any bludgers who simply puts their hand out.

This election they have come up with a slightly different approach.

They are making irrigators pay for their own schemes rather than making the rest of us pay for them like the socialists in the National Party want us to do.

“There are also changes proposed to the funding of new irrigation schemes. Labour proposes withdrawing taxpayer support for new schemes and will instead recycle the funds raised by the charge on freshwater into that support.

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Labour relaunches their Hobbit Hater policy

Labour has re-launched their Hobbit Hater policy at the behest of the unions, proving that their investment in purchasing David Cunliffe and the 20% vote for the leadership has provided a cash for policy arrangement that is giving their leaders sticky knickers.

The Labour Party wants to repeal the law changes that were ceded to Warner Bros over The Hobbit films, a move which the Government says would cripple the $3 billion screen industry.

Labour leader David Cunliffe and MP Andrew Little launched the party’s work and wages policy yesterday, which included a boost to the minimum wage, and a commission of inquiry into workplace conditions.

Here’s an idea…why don;t they just declare a wages crisis, and in short order National will fix the problem. Seems to have worked for manufacturing and housing…it’s worth a crack.

So Labour wants to kill off the film industry in NZ, Dotcom’s party just wants to steal it, and the Greens want to destroy the oil and gas industry.

They really are the wrecking ball of the NZ economy.

But wait it gets worse…Labour also wants to kill jobs.  Read more »

Oram justifies borrow and spend from Brown

One of the left’s biggest apologists, Rod Oram, has penned an article which basically forgives and encourages Len to borrow and spend and particularly for his train set and then at the end of the articles we find Oram is on the payroll.

So he gets hired by the ratepayers and the coincidently uses his weekly column to write nice things about his paymaster.

Ratepayers should be asking what this guy is paid and Fairfax should never have accepted the column and asked him to write about something else, in fact Fairfax should get a proper business columnist who actually knows something about business.

The fight is on for the future of Auckland. The choice is: a healthy one driven by ambition, or a dysfunctional one dragged down by a penny-pinching mentality.

The issue has come starkly to a head with the deliberations over the council’s 10-year budget. The decisions the council will make over coming months, guided by public opinion, will set Auckland’s course for years to come.

So far the pessimists have dominated the debate with their wildly inaccurate and irresponsible claims that the council’s finances are shambolic. Only savage budget cuts can save it, they say.

To set the record straight:

The council runs a budget surplus on operating expenses. In 2012/13 it was $246m.

Rates provide only half the revenues for the council’s $3 billion annual budget. The rest come from a variety of sources.  Read more »

Auckland Council debt at the limit, time to sack the Treasurer

brownhonest

The rot at Auckland Council continues unabated with more news about just how perilously close to trouble the Council is in financially.

Council is already tapping the lit of it’s borrowing capacity. Currently net debt sits at or close to 14.9% of revenue. The limit is 15%.

Which means Len Brown (as treasurer) has spent so loosely in the last two years that Council cannot borrow any more money.

The only way that Council can borrow more – is to increase it’s rates. Raising the rates by 2.5% as noted on this table will increase borrowing capacity by 3%.

Mayor Brown is talking up closure of services – libraries, inorganic rubbish and so on to trick ratepayers into believing things are tough and, to justify breaking his election promises with a significant rates increase. He is already signalling that he is likely to break that promise.   Read more »

Lindsay Mitchell – The Greatest Risk

Lindsay Mitchell has written a fantastic piece and has asked me to publish it so it gains a wider audience. I am very happy to do so.

As Rodney Hide said in the comments, this should be pinned to every wall in Treasury.


Growing up in 1960s New Zealand, houses were smaller and families bigger. Paradoxically, overcrowding and child poverty weren’t a major issue. Most families had two parents and many could even afford a stay-at-home mum. A very small percentage of families experienced financial hardship associated with an absent father.

What changed?

In 1973, influenced by the Royal Commission on Social Policy’s urgings, the government introduced a statutory benefit for sole parents regardless of the reason for their single parenthood. In the following 20 years unmarried births with no resident father more than quadrupled from around 2,500 to 12,000 – 22% of all births – annually. The relatively generous DPB saw single mums dropping out of the workforce. (The Royal New Zealand Plunket Society partially attributes this development to the eventual non-viability of Karitane hospitals which had provided live-in employment for unmarried mothers.)

These births accumulated in the statistics. By the early 1990s around a quarter of a million (mostly) mothers and children were dependent on the state for their survival. But the benefit still kept them above the poverty threshold.

When the incoming National government of 1990 opened Treasury books, the news was bad. This is where the authors ofChild Poverty in New Zealand pick their story up. They describe “benefit cuts of between 10 percent and 30 percent for many beneficiaries supporting children.” In fact, for a lone parent with one child, the cut was 10.7%; for those with two, 8.9 percent. The universal family benefit was abolished, but half of the savings were reallocated into increasing Family Support for beneficiaries and low-income families.

Nevertheless, the drop in income was enough to push beneficiary households below the poverty threshold (though they had probably been barely over it prior). Compounding this was the high number of partnered jobless parents created by an unemployment rate exceeding 11 percent in 1992. From that time the proportion of children in poverty, measured at below 60 percent of median disposable household income after housing costs, has been flat to falling slightly.

Sixty nine percent of children in sole parent households are poor compared to 15 percent in two parent families. Today, a lone parent heads around 30 percent of all families with dependent children. Long-term dependent sole parent families aren’t typically the result of a marriage breakdown. They hail from very young mothers with no educational qualifications, work skills or regular partner.

Every year around one in five new-born babies will be reliant on their caregivers benefit by Christmas. This pattern has persisted from at least 1993. For Maori the number jumps to over one in three.   Add to this Treasury’s advice to the Ministerial Committee on Child Poverty,

“…around 1 in 5 children will spend more than half of their first 14 years in household supported by main benefit. This group is at the highest risk of material hardship and poor outcomes across a range of dimensions”.

The worrying aspect of this pattern is its persistence through good economic times. In 2007, when New Zealand had record low unemployment, the percentage bottomed at around 19%. Over three quarters will rely on a sole parent benefit, the remainder on either an unemployment or disability benefit. While some of the reliance will be due to unforeseen circumstances like are job redundancy, most could have been predicted by the parent.
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In a recent Listener column Jonathan Boston wrote “…it is worth pausing and considering how easy we would find it to raise children under such circumstances.” The same counsel should be put to those people who can actually change the pattern. Though too much emphasis on “personal responsibility” would give less weight to “fairness and compassion” according to the book. Why these societal attributes would be mutually exclusive is unclear. Read more »