The Dim-Post

May 31, 2010

A series of technical challenges

Filed under: economics — danylmc @ 3:51 pm

From Guyon Espiner’s Q & A interview with Treasury Secretary John Whitehead:

GUYON One of the other areas that I guess would be a bit of a shot in the arm for capital markets in New Zealand, would be increased savings. In Australia they’ve had compulsory retirement savings for 18 years. Do you advocate that here?

JOHN We haven’t advocated compulsory superannuation in the past. I think it’s another area where we need a really good debate. I think people that put issues like mining and compulsory superannuation on the agenda, it’s really good for New Zealand, because we need to work through what’s in our own interests, and that’s one of them. So we would certainly be interested in looking at that issue amongst others.

GUYON Do you support it, you’re the chief advisor to the government on the economy, do you support the idea of a compulsory retirement saving.

JOHN What I do support is that we need to get much better at savings in this country, and we need to look at a range of options for that. KiwiSaver has been one of those. Take the recent personal income tax and GST changes, I think [they] are helpful in that.

New Zealand is often compared (disparagingly) to Australia and Singapore. Right-wing economists like Don Brash are especially fond of Singapore with its flat tax structure and robust economic growth.

But Singapore and Australia also have compulsory superannuation schemes. Really successful ones that have grown their capital markets and been a windfall for their economies.  So I find it interesting that Treasury obviously don’t even think it’s an idea worth considering and Don Brash urged the government to shut down KiwiSaver and cash up the Cullen fund. (Australia and Singapore also both have very large sovereign wealth funds.)

When I was a child I’d explain to my parents that when I grew up I was going to be a multi-millionaire. They’d ask me how I planned to do that: what would I study, what job would I do etc. I’d sigh with exasperation and explain that I wasn’t going to study anything or have any job. I’d just have loads of money and a huge mansion and fly around the world all the time. People like Brash and the Treasury Secretary seem to have the same approach to our economy:

We should be like Australia and Singapore!

Oh, you mean introduce compulsory savings to grow our capital markets and establish a large sovereign wealth fund while investing huge sums in science and technology research to improve our productivity?

No.  I mean we should just have high wages and low taxes and high economic growth!

They do have some ideas on how to grow the economy: more tax cuts for the rich and making it easier for foreign investors to buy New Zealand assets; all those things that have been tried in New Zealand and many, many countries around the world and have never, ever worked. Let’s try them again!

Of course the real problem is that compulsory super interferes with the free market which is a taboo activity in the otherworldly cult of right-wing economic thought. Blogs like NoRightTurn and The Standard tend to look for class-based conspiracy theories in which people like Brash are always out to further the interests of the rich. Well if we had a compulsory super scheme with billions of dollars floating around looking for investment then that would suit the rich very nicely, thanks. The indifference (or hostility) towards a proven idea like compulsory super is a religious impulse not a rational one – which brings us back to the question of why a crucial government department like Treasury has been allowed to run itself like a religious sect for the past few decades.

About these ads

24 Comments »

  1. Take the recent personal income tax and GST changes, I think [they] are helpful in that.

    Bwahahahahahahahahahahahahahaha.

    Reduced taxes lead to increased savings? Show me the evidence, Treasury.

    I think we’d all be better off if they sent the entire staff of Treasury to Singapore and Australia. And left them there.

    They do have some ideas on how to grow the economy: more tax cuts for the rich and making it easier for foreign investors to buy New Zealand assets;

    Foreign investment has tended to be largely in the form of profit taking. Anyone who lives in the real world will have seen that these investors have not spent in new capital investment and growth of capacity. And thus, these investments do nothing for New Zealand except increase the balance of payments deficit.

    Comment by George D — May 31, 2010 @ 3:59 pm

  2. Anyone who lives in the real world will have seen that these investors have not spent in new capital investment and growth of capacity. And thus, these investments do nothing for New Zealand except increase the balance of payments deficit.

    If you study a few Milton Friedman papers you’ll learn that that’s impossible.

    Comment by danylmc — May 31, 2010 @ 4:01 pm

  3. I’m always a bit baffled by the right-wing adoration for Singapore, which is by any rational measure an authoritarian hellhole with an incredibly unfree market, political climate, and, well, everything.

    To be fair – Cactus Kate doesn’t even try and hide her contempt for democracy, so I suppose she’s at least consistent.

    Comment by JD — May 31, 2010 @ 4:12 pm

  4. Here is how we encourage personal savings in NZ.

    *Most people earn money from a job, PAYE is deducted from wages.
    *Money left over is spent, GST is deducted from that.
    *Any savings go to the bank and the interest gets TAXed (don’t get me started on inflation).
    *You take your cash out of bank to buy stuff and you pay GST.

    its err, um, not very encouraging is it, getting taxed 3x on every dollar you manage to scrape together.? The Aussies just introduced a %50 tax discount on the first AUD$1,000 of interest.

    Sighs, and they wonder why people buy houses in this country. With cheap interest and inflation, bricks and mortar will out return savings.

    Comment by andy (the other one) — May 31, 2010 @ 4:23 pm

  5. The market cannot be wrong, because god said so, don’t you remember the 11 commandment

    11) Thou shalt not question the market.

    Comment by Jeff R — May 31, 2010 @ 4:25 pm

  6. As David Beatson says over at pundit.co.nz – http://www.pundit.co.nz/content/here-comes-our-%E2%80%9Ct%E2%80%9D-party – “He candidly reveals that Treasury has been “thinking” about “some of the arguments people advance against privatisation”.” This should put the final nail in the coffin of the fiction we have an impartial civil service, at least in the Treasury.

    If an incoming Labour administration had any balls the first thing it should do would be slash the Treasury budget by 75% and direct the rump to stick to their purely accounting knitting. The money slashed from Treasury could then be directed into a new economic policy advisory unit, carefully screened to keep neo-liberals out.

    Comment by Sanctuary — May 31, 2010 @ 5:02 pm

  7. This should put the final nail in the coffin of the fiction we have an impartial civil service, at least in the Treasury.

    We’re not supposed to have an impartial public service. We’re supposed to have a non-partisan one, and also supposed to have civil service that gives advice freely and frankly. As long as these economic experts would give the same advice to a Labour administration, or a New Zealand First one, we’re getting what we pay for. That the Ministry of Justice gave advice against the National/ACT three strikes bill is a good thing, even if that advice coincided with the political positions of the Labour or Green parties.

    Comment by Graeme Edgeler — May 31, 2010 @ 5:19 pm

  8. What Graeme said. Only recruiting right-thinkers while keeping out all wrong-thinkers, christ on a bike.

    Comment by Stephen — May 31, 2010 @ 5:40 pm

  9. “…We’re not supposed to have an impartial public service. We’re supposed to have a non-partisan one…”

    Don’t be such a naive fool.

    Treasury’s economic advice is so closely aligned with hard right political parties that it’s ex-head was an ACToid Manchurian candidate in the National party. The current dry as dust minister of finance was a treasury analyst. Do you really believe if an incoming left wing government demanded advice on a whole range of radical left wing policies Treasury’s Cassandra like opposition wouldn’t be leaked like mad everywhere?

    Oh to have a left wing governments like the 1935 one again! Bob Semple, on his first day on the job, was confronted by treasury officials (just “the past few decades” Danyl?) with charts are graphs showing conclusively how the country couldn’t afford his mad public works schemes, how they’d have to print money and the outcome would be massive inflation. Semple sat through it all, and when they were finished he said “Well, you’d better crank up the printing presses, we start tomorrow”.

    Comment by Sanctuary — May 31, 2010 @ 5:40 pm

  10. “What Graeme said. Only recruiting right-thinkers while keeping out all wrong-thinkers, christ on a bike…”

    Yup. Kind of like those current non-partisan advisory panels this government loves, like for example the 2005 Brash Taskforce or Bennett’s upcoming welfare panel.

    So wah wah wah, cry me a river buddy.

    Comment by Sanctuary — May 31, 2010 @ 5:46 pm

  11. Graeme – but there’s a problem if any one department is totally dominated by a particular economic decision. From working in various capacities, on govt and non-govt sides, it is clear that “Treasury” is a metonym for neo-liberal economic thinking. The bias is so strong that Labour didn’t even try to alter it in its last term. It just bypassed it. A huge number of projects were ‘taken off’ treasury, and managed by MED or DPMC instead. And that’s where corporates moaned about entrenched left-wing thinking (particularly MED). Isn’t it a good idea to get a breadth of ideological approaches across government to provide, as you say, non-partisan advice? Certaintly seems a better idea to me than setting up intra-govt shit fights on ideological grounds, no matter who is in power.

    Comment by Eddie C — May 31, 2010 @ 5:49 pm

  12. I suspect that’s why the current government is shrinking the MED and DPMC, as far as I hear anyway.

    Comment by Funny nose — May 31, 2010 @ 6:11 pm

  13. The problem with Treasury isn’t that its views persistently align with the Nats, who at their very worst still pay lip-service to the reality-based community – it’s that Treasury’s advice is usually wrong (see: every economic forecast Treasury has ever produced) or completely insane (see: most Treasury pronouncements on policy).

    As Danyl has pointed out in the past, a Ministry of Health that persisted in recommending thalidomide be prescribed to pregnant women, a Inland Revenue Service that advocated the death penalty for tax avoidance, or a Ministry of Defence that demanded the NZDF be disbanded and replaced with psychic assassins armed with the gom jabbar would be gutted pretty quickly by any Government. But apparently different rules apply to the Treasury.

    Comment by JD — May 31, 2010 @ 6:19 pm

  14. Funny nose – which proves my point! These are all core ministries/depts, we have them for a reason. Getting people who can appreciate the benefits of different approaches in different circumstances seems far more contructive than yo-yoing staffing numbers depending on which party’s in power.

    Comment by Eddie C — May 31, 2010 @ 6:19 pm

  15. “Reduced taxes lead to increased savings? Show me the evidence, Treasury.”
    The wife and I seriously considered using our tax savings to increase our mortgage repayment.

    Well, until a few days later we’d had a chance to digest the changes to funding of early childhood education. Now we’ll wait to see what happens with the centre’s fees before committing to anything.

    Comment by Clunking Fist — May 31, 2010 @ 7:09 pm

  16. Both Espiner and Whitehead are pretty thick.

    “We should be like Australia and Singapore!

    Oh, you mean introduce compulsory savings to grow our capital markets and establish a large sovereign wealth fund while investing huge sums in science and technology research to improve our productivity?

    No. I mean we should just have high wages and low taxes and high economic growth!”

    In economic terms NZ has little or nothing in common with either.

    What Whitehead is expressing is a theoretical dream.

    Espiner let him off the hook.

    How the hell do we get there?

    Who would not want “high wages, low taxes and high economic growth” (from a finite planet). Yeah Right!

    Comment by peterlepaysan — May 31, 2010 @ 9:26 pm

  17. I’m to lazy to look it up, but when DPF wrote about the Cullenfund he said that the days of compulsory super were near. So as far as DPF belongs to “cult of right-wing economic thought” that’s already wrong.

    I’m open to the idea. It’s daft to borrow to contribute to the Cullenfund, but compulsory super might work.

    But may I also note the countries that have tried this (yes, I can play that game too), and subsequently confiscated the retirement money? Even the US is floating the idea to grab 401k savings.

    Comment by Berend de Boer — June 1, 2010 @ 6:35 am

  18. Actually BdB I think it was ‘privatised’ super, which was thanks in no small part to the advent of Kiwisaver.

    HAVE any countries confiscated the money?! You might not be able to convince people that tax is theft, but that sounds like another story.

    Comment by Stephen — June 1, 2010 @ 8:09 am

  19. i think BdB might be right on this occasion. the US has apparently been raiding its retirement savings for decades, and is now tipping into deficit.

    another reason to think the eagle will bankrupt itself in the not-so-distant-future.

    Comment by Che Tibby — June 1, 2010 @ 8:19 am

  20. i think BdB might be right on this occasion. the US has apparently been raiding its retirement savings for decades, and is now tipping into deficit.

    another reason to think the eagle will bankrupt itself in the not-so-distant-future.

    Yeah, that scares me. As does the fact that China now owns so much in US currency.

    Comment by George D — June 1, 2010 @ 12:57 pm

  21. Gordon Brown again:

    http://www.telegraph.co.uk/news/uknews/1531448/Browns-raid-on-pensions-costs-Britain-100-billion.html

    Most severely affected were “final-salary” (company) pension schemes, a defined-benefit scheme offered by employers. Kiwisaver is a defined contribution scheme and has few tax advantages other than the PIE regime. (I don’t consider the possibility of withdrawl of top-ups and hand-outs as “stealing” in the sense of the concerns raised by BdB.)
    I was too young to understand what Muldoon did to our pensions, and I couldn’t find much via wikipedia or google (except an article by Amy Muldoon on the theft of pensions, lol) but I’m led to believe he “stole” pensions.

    Comment by Clunking Fist — June 1, 2010 @ 1:23 pm

  22. “I don’t consider the possibility of withdrawl of top-ups ”
    I mean “ceasing to give top-ups and hand-outs” rathet than reaching in and taking BACK the credits previously given. They already take some stuff back, in certain circumstances, if you leave the country.

    Comment by Clunking Fist — June 1, 2010 @ 1:26 pm

  23. Stephen: HAVE any countries confiscated the money?!

    Argentina is one.

    Comment by Berend de Boer — June 1, 2010 @ 3:38 pm

  24. @andy (#4): Different dollars. Think about it.

    Comment by rainman — June 1, 2010 @ 6:57 pm


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

The Rubric Theme. Blog at WordPress.com.

Follow

Get every new post delivered to your Inbox.

Join 391 other followers

%d bloggers like this: