Working for families?

This is the second post in a two part series about the tax changes announced in the budget last week. Part one is Tax matters?.

In all of this talk of tax nobody seems to be saying much about what our tax dollars are actually spent on.

David Slack’s post last Thursday reminded me of an idea that Jimmy Wales (founder of Wikipedia) put forward a while back for a transparent budget.

When people struggle to keep on top of how much they personally earn and spend, then it’s probably also true to say that they really have no idea how much tax they pay, or (more importantly) what it is spent on.

Imagine if we were each sent a statement at the end of the year which included the total amount of tax we had paid and a breakdown of how this had been allocated to the various things that the government decided should be funded using this money.

Now that so many more of us are beneficiaries, via Working For Families, Kiwisaver, Student Loan Interest Write-Offs etc, then those “credit” payments could be incorporated into the statement too.

I suspect people would think differently about our “free” health and education systems, for example, if they better understood how much of their money was spent on it each year.

How much tax did you pay last year?

And what was it spent on?

Don’t you think you should know?

Tax matters?

This is the first post in a two part series about the tax changes announced in the budget last week. Part two is Working for families?

“New Zealanders expect far too much from the tax system. It now seems unfashionable to regard the tax system as simply being the Government’s primary means of collecting revenue to run the country. People expect it to also resolve poverty, reduce income inequalities, compensate for surging food and petrol prices and incentivise savings.”
— John Shewan, Chairman of PricewaterhouseCoopers, commenting on this weeks budget.

Who would want to be a Minister of Finance?

Can you wait until the election campaign, and the “my tax cut is bigger than yours!” smack down contest, starts? Or will it be the “my propensity to cut spending is bigger than yours!” content now?

Now the team in the red corner has announced their package, how many more blocks of cheese can you afford? That seems the be the question.

And, how many blocks are you expecting the blue corner to offer?

Have you factored in the cost of petrol?

A litre of 91 unleaded now costs NZ$2.00, which is about US$1.56 at current exchange rates. Let’s hope that the dollar doesn’t drop back to 62c anytime soon (like it did at the peak of the last economic cycle), as even assuming the price of oil stays the same as it is now (which seems unlikely) that would mean we’d be paying closer to $3.00 a litre. Suddenly cars are a luxury item!

There is no point, surely, in having the cash for an extra block of cheese when you can’t afford to drive to the supermarket to pick it up.

Do we pay too much tax? Compared to what?

Does the amount of tax we pay make us all less productive?

I don’t know, but I suspect there is an argument to say that lower tax rates just mean that those who are motivated to be successful either way get to keep more of the money they earn.

Although it does create the right incentives for government to keep their spending under control (just like an over-funded start up business, they don’t seem to struggle to find ways to spend the money they have). More about this tomorrow.

Like John Shewan explains above, I think we’re all expecting too much from “the system”.

Is it up to the government to make us feel rich?

Or is it more about the number on the top line of our pay slips (i.e. the bit we influence)?

Here is a interesting comment about the changes to the business tax system which were introduced earlier this year:

“Businesses need to ask themselves two basic questions. Will a bit of tax relief for export marketing and R&D be worth the bureaucratic trouble to get it? And is your failure to export or do R&D simply a matter of being short of a few dollars? Or is it a fundamental failure of ambition, management skills and strategy?”

— Rod Oram, in Dominion Post (sorry, the link I have no longer works: http://stuff.co.nz/4042265a1865.html)

I think the same questions could be asked of individual tax payers too.

What do you think?

What will you do with your tax cuts?

Will they make you work harder? Or bugger off to Australia?

Does a few dollars a week change your vote in either direction?

Or, are there other things that are more important?

Bernard, on stuff and things

When I first started to read the business pages in the Dominion the editor was Bernard Hickey.

(As an aside, I’m often surprised by how people who read the business pages assume that everybody else does too. Anecdotally, that just isn’t the case. But, I wonder if there are any hard numbers to prove or disprove this?)

Later I briefly crossed paths with him during my time at Trade Me. He was then Head of Digital at Fairfax Media and was part of our advisory board.

He now works as the Managing Editor at interest.co.nz and seems to be popping up as a commentator all over the place (good PR for the site, I suppose).

He also still runs a blog that I enjoy on stuff.co.nz:

www.stuff.co.nz/blogs/showmethemoney

Lately the business and finance news has thrown up a number of great topics for him to get stuck into. Here are a few that have caught my eye over the last couple of months…

On why a capital gains tax is unlikely:

“Why wasn’t there more of a debate about the issues behind the serious [housing affordability] proposals?

My theory is that the New Zealanders who run the place haven’t really confronted and don’t want to confront the ugly truth. I’m talking about the generations who graduated in the 1970s and 1980s and who now run both central and local goverments, who run the media and who generally set the parameters in a national debate.

These are the generations who graduated without student loans into good jobs when a home loan cost less than 40% of after-tax pay to service. They bought houses before 2003 and are now sitting on massive capital gains. Many have become semi-professional landlords with fancy Loss Attributing Qualifying Companies that allow them to offset operational losses on their rental properties against their salaries to reduce their tax bills. They have become addicted to the tax free capital gains on these properties. They’ve started consuming some of those gains in the form of holidays, electronics, cars and boats financed through their mortgages.”

Helen’s lucky and selfish generation

On the meltdown on Wall St. and it’s implications for NZ:

“Put simply, panic and fear rule in the world’s financial capitals right now and it will cost us all in one way or another and sooner or later.

In previous periods any panic on financial markets affected us most directly through our stock market. When Wall St fell, that hit the New Zealand stock market. Back in 1986 we had a lot of money invested in stocks, proportionate to our total net worth. Reserve Bank figures showed that 50% of household net wealth was in financial assets in 1986, mostly in shares. The other 50% was in the value of our houses. So when Wall St sneezed we caught a cold fast.

The direct link is much more muted now. The most recent Reserve Bank figures show financial assets, again mostly shares, made up NZ$186 billion or just 31% of household net worth in 2006, whereas housing (minus housing debt) makes up $407 billion or 69% of household net worth. But that housing debt is now much more important than it used to be. Whereas in 1986 we had $65 billion worth of financial assets, we had over $150 billion of housing debt at the end of 2006.

What does that all mean? It means we care more now about interest rates and how they affect house prices than we do about share prices. But this global financial crisis is affecting both of these things too. It’s just not as direct and immediate as in previous crises. This global credit crunch has increased interest rates globally and that’s how this financial crisis is hitting us this time.”

What panic on Wall St means for us

On Fonterra’s decision to suspect their plans to float part of the company:

“This decision shows that the most important single group of investors in New Zealand (the 11,000 farmers who own Fonterra) don’t have faith in the managers of Fonterra, don’t believe in our capital markets and don’t have the ambition to become a truly global company.

Just like so many investment decisions made by our mostly elderly investing classes, they are so obsessed with property valuations and their own searing experience of the 1987 stockmarket crash that they can’t bring themselves to take any risk associated with the equity markets and the professional managerial classes. Instead they are more than happy to take enormous risks with debt-fund investments in property they can walk on. It shows a lack of imagination and, frankly, intelligence.”

NZ investors addicted to medioricity

On the prospects for property prices:

“The property-owning generation who do know the famous line from Dad’s Army have been reciting it to each other and their real estate agent friends for a few months now.

“Don’t panic Captain Mainwaring (yes the spelling’s right, although it is pronounced Mannering),” they’ve been saying about the threat of falling house prices. It will never happen here, they say. We have never had big falls in prices before and it won’t happen this time, they say. We’ll have a period of relative stability and then we’ll be back up, up and away on our merry way. Sit tight, they say.

But they are wrong. The latest batch of statistics say they are wrong and any rational examination of housing affordability in this country shows they are wrong. Prices here are currently at least 30 per cent over-valued and it’s now a question of how much and how fast they fall rather than if they will fall.”

Don’t panic Captain Mainwaring, don’t panic

Our Information State Highway

We have some friends from the UK staying with us at the moment, so I’m in the habit of making excuses for our infrastructure.

To anybody who has driven on the motorways overseas what we call “State Highway 1” is a bit of a joke.

Seriously … one winding lane each way with no median barrier?

And where are all of the cars?

Likewise, what we call broadband really isn’t.

The international speakers who were here for Webstock last week were too polite to complain about it in front of us, but you can tell what they really thought by reading their twitters.

How embarrassing.

Full credit to Jeremy Wells from one of his ‘Unauthorised History of New Zealand’ episodes for the title of this post.

Sir Ed

Edmund Hillary

New Zealanders everywhere have, hopefully, taken some time today to reflect on the life of Sir Edmund Hillary.

I watched the funeral on TV this morning and tried to explain the significance to my young son. But he’s only 3 and didn’t really understand.

He was a legend, no argument about that.

He climbed his Everest (which just happened to be the actual Everest) at the age of 35.

And, after that he got on with the next thing.

This quote from Peter Hillary’s eulogy to his dad will stick in my head (from memory, so please excuse me if I don’t have the wording exactly right):

“Don’t wait for great things to happen to you, or else you might be waiting a very long time.”

In New Zealand cows eat grass

I was interested to read Jeremy Zawodny’s recent post, where he talks about the difference in quality between the red meat he ate on his recent trip to Africa and what he’s used to in the US.

Any kiwi who has travelled to the US will relate.

It reminded me of a great Anchor billboard which was running in London when we arrived there in 2001. The scene was a typical New Zealand rural setting – green hills, fences, the odd farm animal. And the by-line was simple:

In New Zealand cows eat grass

Sometimes your unique selling point is not necessarily obvious until you’re on the outside I guess?

Or, as Fred Dagg might say, we don’t know how lucky we are in this place Bruce.

What do you do?

I went to hear Danyon Loader speak a while back.

He is an excellent speaker. If you get a chance to hear him, take it.

He had a nice anecdote which I’ve been meaning to share on here…

He said he can usually tell where somebody comes from based on the first question they ask when they meet somebody new.

  • Those from Dunedin ask: what are you studying?
  • Those from Christchurch ask: where did you go to school?
  • Those from Wellington ask: what do you do?
  • And, those from Auckland ask: where do you live?

Interesting!

So, what do you do?

:-)

Do business with New Zealand

How is the 100% Pure NZ site promoting NZ businesses?

http://www.newzealand.com/

Look at the two links:

Travel: Funky font. Exciting colour. Wicked.

Business: Grey! Times New Roman! Yawn. :-(

It looks to me like this splash page, where visitors are forced to choose between travel and business, is a recent addition.

I wonder what the bulk of the visitors to this site are after?

My guess would be travel. So, why not get rid of this choice altogether? Just default to the much nicer travel site landing page and have an obvious link in the navigation to segue those people who are interested into the business section.

Chris Killen signs for Celtic

Living in the UK for a few years I got used to having the sports news totally dominated by football (I even learned to call it football rather than soccer).

Here it’s the other way around. Even when the All Blacks are playing a second- or third-string French side, which everybody expects them to beat comfortably, other sports still struggle to get a look in.

But tucked away at the bottom of the back page today was some interesting news:

Killen confirms move to Celtic

Celtic is a top club, so this is big news. Next season they will play in the elite Champions League. Chris Killen will be the only New Zealander in that competition.

Not bad for a fellow Rongotai College boy!

The heart of the edge of the world

I’m a big fan of the ideas behind The New Zealand Edge.

Here is where the name comes from:

“The metaphor was given to me by Kevin Kelly, founding editor of Wired. I drove Kevin to Karekare, as one does, when he visited in 1996.

He said that New Zealand was really easy to understand, because in biology – his genre – change and innovation occurs first on the edge of a species, where the population is most sparse.

New forms of life emerge on the margins, away from the deadening effects of the center. The excitement is on the wing, not in the scrum.”

Brian Sweeney, Victoria University Design Conference, 2003

Applying these ideas to New Zealand came out of the work that Saachi & Saachi did for the Tourism Board in the late 90’s, before being dumped because of a scandal involving a dinner between Kevin Roberts and Jenny Shipley.

In it’s place we got the “100% Pure” campaign.

They have great photography of amazing scenery and of course an award winning website, but it feels like an unfortunate compromise to me.

“We must turnaround our fixation with beauty. We have to stop defining ourselves in terms of other countries’ standards. We’re actually not going to win a ‘My Alps Are Bigger Than Your Alps’ contest, so we’ve got to add massively to the existing set of perceptions about New Zealand.

People don’t have a really great holiday here just because the mountains are so beautiful, or the fishing’s great, or the fjords terrific. People are the essence of most memorable tourist experiences.”

Kevin Roberts, NZ Tourism Industry Association Conference, 1998

Here is a video of a recent speech where Kevin Roberts applies the same ideas to Wellington:

The heart of the edge of the world

It’s 38mins, but worth watching.

Here are a couple of quotes that stuck with me:

On measuring the success of an advertisement:

“The only question that matters is ‘do you want to see it again?'”

On engagement:

“It’s not about ‘marketing at’ it’s about ‘connecting with'”

Good stuff!

P.S. You might notice that their logo is the alternative NZ flag design, as proposed by Lloyd Morrison and friends (see www.nzflag.com). What ever happened to that campaign? It seems to have just fizzled out eh? What a shame!