Economic sabotage redux

Ten days ago National’s Housing Minister announced an inquiry into the cost of building materials:

Nick Smith, speaking on “The Nation” said there was significant concern that items “the likes Batts, likes of Gib and concrete” were more expensive than what they were in Australia.

Batts and Gib are Fletcher’s brands and the company is a major concrete supplier.

Here’s what’s happened to Fletcher’s share price over the past thirty days:

According to the Steven Joyce/Fran O’Sullivan theory of political sharemarket vandalism, Nick Smith has ‘destroyed’ about $260 million dollars worth of wealth in the last ten days. I look forward to their columns/press releases warning of capital flight, skies raining blood etc.

Chart of the day, dead Wood edition

I’ve just watched the Q & A section on the Labour-Greens power policy, in which Susan Wood agonised over the massive financial destruction the announcement visited on all the ordinary New Zealanders who have investments in KiwiSaver (and, indirectly, in the Cullen Fund and ACC), so have lost hundreds of millions of dollars over the last week because of the massive market crash.

This is a talking point the government’s shills have been throwing around all week – Hooton claimed the total loss was in the ‘billions’ on National Radio – so I thought I’d take a look and see how the NXZ has actually been performing recently. The red line is April 18th, the day Labour and the Greens launched their announcement.

Chart of the day, destruction of wealth vs destruction of independent thought edition

NZX data on Contact Energy’s share price, which – according to Matthew Hooton and the Herald’s Liam Dann has suffered an unprecedented form of destruction in the wake of the Labour Green power policy announcement:

So Contact’s shares are at their lowest level for like, seven weeks! And still way above their historic average! Hooton is paid to regurgitate preposterous bullshit, and he’s pretty great at his job, but the Herald’s business editor should be a little less gullible.

Kicking the tires out from under them

You can critique the Labour-Greens power-policy on a number of levels. Where do they pluck their estimates of 5000 jobs and $450 million dollar boost to ‘the economy’ from? What happens if our power companies respond to reduced windfall profits by sacking all their staff and scrapping expenditure on the maintenance of their assets?

You can even claim that it amounts to nationalisation of the energy sector and ‘North Korean style economics’, if you don’t actually know what nationalisation is and think that North Korea is a country where publicly listed companies own the electricity infrastructure and pay dividends to private shareholders.

But you can’t fault the politics. The government needs the partial sale of Mighty River Power to succeed. It’s their signature achievement. English needs the cash, and Key has bled so much political capital and invested so much time on this policy that it has to work. And now the shares are finally on sale to New Zealand buyers. It lists on the NZX early next month. They must have felt like they’d finally made it.

But now Labour and the Greens have announced that if they’re elected dividends from these companies will be minimal. How do you quantify that if you’re a risk analyst for an investment fund? No wonder National are furious, and Simon Bridges was close to tears in Parliament yesterday spluttering about the decline in Contact Energy’s share price.

Maybe the market won’t care, and the float will be a success. But if it isn’t, I don’t think the public will be sympathetic when the government blames the opposition. This is an unpopular policy, and government Ministers blame Labour every time they spill their coffee. It’ll also leave English trying to raise money, either through borrowing, spending cuts or tax increases, all of which would kick in in 2014. Election year.

The elephant in the river

Via the Herald:

Ordinary New Zealanders will be favoured “at every turn” of the Mighty River Power share sale which gets underway today, says Prime Minister John Key, who has pledged at least $2000 worth of shares for those who want them.

Labour leader David Shearer said Mr Key had so far been unable to explain how he would prevent more than 15 per cent of Mighty River shares going to overseas investors.

Green Party co-leader Russel Norman said the $1 million advertising campaign “shows National knows how unpopular this policy is … They’re doing everything they can to try and sweeten the deal”.

Ownership transferring to overseas investors and the dividend stream leaving the country is one possible outcome here, sure. But another VERY possible outcome is that the majority of ownership ends up in the hands of ‘ordinary New Zealanders’ who then lose all their money when Mighty River is mis-managed into bankruptcy. Solid Energy only collapsed a couple of days ago, and there’s nothing stopping Mighty River’s executives from borrowing crazy amounts of money, using it to pay out dividends for the first few years and rewarding themselves with spectacular bonuses and then walking away rich men when the debtors call in the receivers.

Indeed, that’s one of the rationales for the asset sale – it shifts some of the risk of failure away from the government and onto the shareholders, which is fine if the shareholders can manage that risk by monitoring the company and diversifying their investment portfolio – which funds like ACC, the Super Fund and the KiwiSaver providers will all do, but which ‘ordinary New Zealanders’ mostly won’t.

Given the proximity of these events – Mighty River float, Solid Energy collapse – it’s a little weird that the opposition aren’t more focused on the fact that the government is giving New Zealanders terrible investment advice that could cost them a lot of money. I guess the objection to the sale has always been in economic nationalist terms, so it would sound odd if they turned around and told kiwis not to invest in these assets. But it seems like someone should.

Election strategy tax

You need to have watched a few sessions of Question Time over the last year to really appreciate the jaw-dropping ballsiness of National’s surprise petrol tax increase, and seen Key, English, Brownlee, Joyce, Groser and Simon Bridges splutter with dignified outrage at the suggestion that carbon emissions should be priced into the market. ‘That would lead to increased petrol costs for ordinary New Zealanders,’ they’d howl, disgusted at the opposition’s vicious indifference to the struggles of ordinary people. ‘Labour and the Greens want to hit working people the hardest,’ they crowed. ‘It would lead to across the board living increases that would cripple the fragile economic recovery!’

(If we weren’t heading into the holiday season it’d be fun to crowd-source finding the most ironic Question Time performance on this issue: I’m guessing it would come from Simon Bridges answering on behalf of Groser. The other Ministers manage to memorise their lines, Bridges tries to look self-righteous while reading off a sheet written for him by some anonymous senior staffer.)

Anyway, not unusually, everything those Ministers said all year turned out to be meaningless bullshit, and taxes will go up as of next June. This means the government can keep its election promise and restore the government’s books to surplus going into the election. That doesn’t mean much in real life: the surplus is forecast to be $66 million, the government debt is about $50 billion, so impact on the economy is non-existent. This is all about the impact on the 2014 election campaign. ‘Labour left us a decade of deficits! But now the John Key National government has put New Zealand in the black!’

That campaign slogan – or one very much like it – is literally all this new tax increase buys us. And it might not be enough. Ever since the 2010 ‘revenue neutral’ tax switch, Bill English’s job has largely consisted of dreaming up stealth tax increases to plug the enormous hole his high income and corporate tax cuts blew in the government books. I doubt this petrol tax will be the last.

Legitimate tax avoidance

Guyon Espiner had a story on 60 Minutes last night about New Zealand’s status as an offshore tax haven for wealthy foreigners. Apparently there are tens of billions of dollars – mostly from high net-worth individuals in South America – sitting in New Zealand foreign trusts. And as part of that story Espiner interviewed Revenue Minister Peter Dunne and asked him if it was moral for the New Zealand government to structure its trust laws in a way that allowed very wealthy people to avoid their tax obligations to their own governments.

Now, Dunne could have said a lot of things here. He could have pointed out that this money mostly seems to come from rich people in developing countries, and that it’s not so much about tax evasion than that it is simply prudent for these people to financialise some of their wealth and stick it someplace safe, so that it can’t be wiped out in a crash, or nationalised by their own government, or whatever. And he could have argued that managing this wealth brings tens of millions of dollars into the New Zealand economy in legal and accounting fees.

But he didn’t. Instead Dunne argued that it’s acceptable for high net worth individuals to practice ‘legitimate tax avoidance’ and do everything they can to minimise their tax exposure. Meanwhile, Dunne has been very active cracking down on tax avoidance by salary earners, introducing a ‘paper-boy’ tax cut, taxing staff car parks, and so on. But oversight of the trust industry (or a Capital Gains Tax) is out of the question. Under this government, tax avoidance is only legitimate so long as you’re already rich.

‘Legitimate tax avoidance’ is an idea that’s prevalent in the finance sector. ‘Taxation is theft. The government takes money off genuine wealth producers and destroys it by spending it on schools or hospitals or welfare services instead of creating more wealth by speculating in commodity or currency markets.’ Dunne’s use of the term suggests to me that he’s been ‘captured’ by the finance sector; which would be completely in character, but isn’t a great quality to have in a Revenue Minister.

Burning question of the day

As most New Zealanders are aware, I make chicken stock using the carcasses of my roast chickens (along with various herbs and vegetables from the garden). Recently I’ve been adding in raw chicken necks (not from the garden) and I wonder if I should brown the chicken necks before I add them to the pot. What say you all?

There’s an ordinary New Zealander born every minute

According to John Armstrong, National’s asset sales program is about encouraging hundreds of thousands of ‘ordinary New Zealanders’ into the sharemarket, thus transforming New Zealand into a capital owning democracy.

I wonder if National – or Armstrong – know that several million New Zealanders now own shares via their investment into KiwiSaver funds?

(My guesses to that question: absolutely yes, and absolutely not.)

It’s not quite the same, of course. If you put your money into KiwiSaver it gets spread across a range of different asset classes according to your risk profile. If you sink all your money into buying shares in four different power companies then you could lose almost all of it in the event of, oh, say, a Waitangi tribunal finding and High Court decision that has a huge impact on the value of companies in that sector.

More Calvinball

Before the election Key insisted that the energy companies and Air New Zealand would be sold to ‘Kiwi mums and dads’, and said:

. . . given New Zealanders have $300 billion worth of investments, they will buy and keep the shares.

“We could say one hundred percent of shares to New Zealanders, obviously we could say less, but we are targeting that eighty five to ninety percent and I’m confident we’ll reach it,” Key said.

Here’s Key today on the possible cost of the loyalty scheme:

“If you think about the entire float that could be in the order of $5 billion to $7 billion. Let’s argue that it’s $5 billion for a moment if you then turned around and said about 20 per cent of that could be for mum and dad, it could be more it could be less – but just for the purposes of maths that’s a billion.

Key also adds:

These numbers that the Labour Party are coming up with and the Greens are farcical.