Lefter #24 ~ the New Zealand economy

Back in ye olde distante past-ey, I had a couple of quite different jobs, one after the other, sticking at each for just over a year. This was in the late ’70s and early ’80s, in Auckland.

I started, and they told me what my wage was, when I’d be reevaluated, and what the wage rise would be at that point. They told be what the promotions available were, and what the wages were if those posts were obtained. I could see my working life stretching out before me, and figure out what I’d be earning. I could plan my life – what I’d buy, and even when I might possibly look at buying a house. (Of course, I quit and went to Europe.)

When I got back to New Zealand, everything had changed. We were supposed to negotiate our own contracts. The unions were pretty much smashed. The bozo sitting beside me picking his nose and faffing about could be earning twice what I earned because he was better at talking to the director, or promoting himself. There were no more regular wage rounds because the boss knew it was best to ignore them.

My immediate department head could be on three times my salary – or the same.

People regularly lost their jobs simply because they had talked their wages up too much to be tenable. In my firm, the useless or timid negotiators stayed the longest. The rest were out there like sharks, getting continuous promotions and spending more time on ‘negotiating’ and self promotion than on working.

Just look at Telecom to see what effect this has had. Because now, many of these people run things.

And now we consider ourselves a ‘low wage economy’, compared to Australia. Australia still has powerful unions. All of New Zealand’s deregulation was supposed to ‘empower’ bosses. It’s empowered them to run bad businesses because greed was allowed to become the driving factor.

Now these bosses have even more of the situation they dreamed of – a National Government.

It’s been disappointing, though, even to them. New Zealand businesses cannot plan for their futures, with the result being a crisis of confidence and worse, either shutting down or moving offshore.

I went to a fascinating discussion the other day, run by the newly resurgent NZ Fabian Society. The talk, which was presented at an obscure if surprisingly plush chiropractic college in Ellerslie (and yes – I don’t know why, for both counts), was presented by Ganesh Nana (Wellington-based economist with BERL Forecasts), Selwyn Pellett (wealthy entrepreneur), John Walley (CEO of the Manufacturers and Exporters Association) and economic commentator Rod Oram.

Pellett and Walley both stated this wasn’t a matter of left and right. I’m not sure Walley would have even bothered to make that statement a year ago (I could be wrong, but I assume it would be accepted he was of the right, back then).

All were terrific speakers, and all had something to say. Considering the political and economic span they represented, I found it notable they all pressed the same four points:

1/ New Zealand needs leadership. It doesn’t have it.

2/ NZ’s currency needs to be regulated.

3/ We need a Capitol Gains Tax (of which, more later) and;

4/ An economic crisis is coming. We can manage our way down through it, but if we ignore it, it will be more calamitous than we seem able to imagine.

Anyway, back to the Capitol Gains Tax. Why should you pay a tax on property transactions? Many reasons:

• NZers borrow money from banks to buy property as we perceive that as being the safest option. This is almost inevitably from Australian banks, as they own most of the ‘NZ’ banks. Tellingly, they’ve all made huge profits in the ‘recession’. Australian banks made a third of their income ‘offshore’ (from Australia, that is). So we’re making Australia richer. And the interest we bank is used for Australian investment, not for NZ investment.

• Banks here therefore lend happily to home buyers, but not to businesses for business development or expansion, or R&D.

• Buying property artificially raises the price of property, making it harder for people to buy homes to live in. A house changes hands four times in a decade, say. It’s sold for $300,000, then $400,000, then $550,000, all for the same house. Crazy. Capitol Gains Tax would put a curb on the market.

• Property transactions do not benefit the NZ governments (and therefore, us), because there’s no tax or other levy on them.

• Worse, unscrupulous Kiwis use property as a sink for tax and GST write-offs. So even less tax arrives in government coffers.

One idea mooted at the presentation was overall tax reform that actually benefits the country and does not tinker with GST. I got the impression these four guys could work out a proper tax reform in a week – how come the government task force did such a bad job of it?

Oh yeah, Don Brash was involved. [Oh, I take that back, seems he wasn’t.]

The Fabian Society is worth a look, by the way. I know there have been some notably bad Fabians but there have also been some notably great ones. The Fabian Society has the opposite of the Anarchist ‘direct action’ ethos. It promotes left wing thought by discussion and dissemination of knowledge. So it can lead to fascinating insights if well managed, as this inaugural event patently was. And if good speakers are presented. Once again, tick.

I look forward to more. Check out the forthcoming presentations by the Fabians in Auckland, Wellington and Christchurch.