It is strange how successive governments have put politicians with limited training in Economics or Accounting in charge of the finances. I wonder if this is because Minister of Finance is seen as a marketing role, not a position from which to develop innovative fiscal policy?
I would say the NZ Treasury are 'culprits' rather than 'experts'. My take is that the Treasury 'experts' failed to identify the need to supertax the Covid relief money back out of the economy at the corporate / top bracket level- just copying other countries without reference to the lack of attractive places for NZ investors to 'park' the funds within NZ once the relief dollars had moved up the business hierarchy into their pockets.
The first 'park' was the real-estate market- until the bubble burst. Alongside was the share market, but when the Covid funds stopped flowing & the Ponzi threatened to unravel, share prices had to be propped-up by appropriate dividends (say 8%) on the inflated share-price. This was a global phenomenon & the actual cause of 'greedflation'. Since the Gov't are owners of the NZ Super Fund & mandators of Kiwisaver- both of which are largely shares-based- not to mention their personal investment portfolios- they had zero incentive to countenance price-controls.
The final part of the trifecta has been the Balance of Payments situation caused by NZD flowing offshore to buy assets in more buoyant and stable economies. It's the worst it's been (as % of GDP) since Muldoon's refusal to float the NZD at the time of the 1984 election, and the cause of the current weakening of the currency. In the absence of any other feasible (under trade-deal obligations) way to curtail imports, demand destruction for by a deliberately induced recession is the Treasury's solution, which is conveniently compatible with National/Act's ideological obsession to shrink government at any cost and bring 'discipline' to employer-worker relationships.
One has to presume Willis/ Luxon don't even know they've been blind-sided by Treasury officials into being the scapegoat for their earlier incompetence. One could even speculate that Labour could see this coming down the tracks and made a tactical decision to 'throw' the election to the opposition so that this debacle wouldn't play out on their watch.
Government understanding the need to supertax at a time when it is pouring unprecedented sums of money into the economy to deal with an emergency is not rocket science and it's not a new theory. During WW2 the British government raised the top band of income tax to 99.25%- not to 'pay for the war'- at a domestic level that was done by money creation, but to prevent massive accumulations -'war profiteering' in anticipation of their deleterious effect once the economy returned to a liberal footing.
Apparently economic history is no longer taught in economics degrees. Perhaps it should be reinstated.
Earthquakes, climatic events, pandemics- even infrastructure backlogs- are always going to demand the government steps up with substantial funds from time-to-time. Therefore taxation is always an appropriate tool for macroeconomic management. Trying to use interest-rate only, which is largely targetted at private credit creation, is a weak and inappropriate tool for dealing with fiat oversupply.
Grant, you criticize the reinstatement of the interest deduction for rental properties. I sort of see where you are coming from, but surely any measure to increase housing supply is a good thing?
The interest deduction probably increases supplier surplus more than consumer surplus, but anything that helps is good in an environment where any increase in demand accrues only to supplier surplus?
Show some sympathy for Willis. It is her Cabinet colleagues who have let her down by failing to slash the spending in their portfolios inherited from Labour.
How true is this of NZ politicians and the economy? “
“Risk comes from not knowing what you are doing.” Warren Buffett
He'd know more about risk than I do! But it probably applies to them all.
It is strange how successive governments have put politicians with limited training in Economics or Accounting in charge of the finances. I wonder if this is because Minister of Finance is seen as a marketing role, not a position from which to develop innovative fiscal policy?
You're right. The actual experts are in the Treasury. MoF is just the retail arm.
I would say the NZ Treasury are 'culprits' rather than 'experts'. My take is that the Treasury 'experts' failed to identify the need to supertax the Covid relief money back out of the economy at the corporate / top bracket level- just copying other countries without reference to the lack of attractive places for NZ investors to 'park' the funds within NZ once the relief dollars had moved up the business hierarchy into their pockets.
The first 'park' was the real-estate market- until the bubble burst. Alongside was the share market, but when the Covid funds stopped flowing & the Ponzi threatened to unravel, share prices had to be propped-up by appropriate dividends (say 8%) on the inflated share-price. This was a global phenomenon & the actual cause of 'greedflation'. Since the Gov't are owners of the NZ Super Fund & mandators of Kiwisaver- both of which are largely shares-based- not to mention their personal investment portfolios- they had zero incentive to countenance price-controls.
The final part of the trifecta has been the Balance of Payments situation caused by NZD flowing offshore to buy assets in more buoyant and stable economies. It's the worst it's been (as % of GDP) since Muldoon's refusal to float the NZD at the time of the 1984 election, and the cause of the current weakening of the currency. In the absence of any other feasible (under trade-deal obligations) way to curtail imports, demand destruction for by a deliberately induced recession is the Treasury's solution, which is conveniently compatible with National/Act's ideological obsession to shrink government at any cost and bring 'discipline' to employer-worker relationships.
One has to presume Willis/ Luxon don't even know they've been blind-sided by Treasury officials into being the scapegoat for their earlier incompetence. One could even speculate that Labour could see this coming down the tracks and made a tactical decision to 'throw' the election to the opposition so that this debacle wouldn't play out on their watch.
Interesting theory, thanks Kevin!
Government understanding the need to supertax at a time when it is pouring unprecedented sums of money into the economy to deal with an emergency is not rocket science and it's not a new theory. During WW2 the British government raised the top band of income tax to 99.25%- not to 'pay for the war'- at a domestic level that was done by money creation, but to prevent massive accumulations -'war profiteering' in anticipation of their deleterious effect once the economy returned to a liberal footing.
Apparently economic history is no longer taught in economics degrees. Perhaps it should be reinstated.
Earthquakes, climatic events, pandemics- even infrastructure backlogs- are always going to demand the government steps up with substantial funds from time-to-time. Therefore taxation is always an appropriate tool for macroeconomic management. Trying to use interest-rate only, which is largely targetted at private credit creation, is a weak and inappropriate tool for dealing with fiat oversupply.
Grant, you criticize the reinstatement of the interest deduction for rental properties. I sort of see where you are coming from, but surely any measure to increase housing supply is a good thing?
The interest deduction probably increases supplier surplus more than consumer surplus, but anything that helps is good in an environment where any increase in demand accrues only to supplier surplus?
Fair question, thanks. Has that tax policy actually led to an increase in housing supply? Is there some evidence? I'll concede the point if there is.
Show some sympathy for Willis. It is her Cabinet colleagues who have let her down by failing to slash the spending in their portfolios inherited from Labour.
I'll go along with that! Nice point, thanks.