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The Letter - 7 April 2014

7 April 2014

View from abroad

The Letter was in Australia last week.  We have come home to see commentators wondering why New Zealand First is on 7%. It is the fallout from the Minister of Justice going at taxpayers’ expense to China to have talks with the company that has made her husband a director.  Because it was China Winston Peters is the beneficiary.

 

Crusher Collins crushing National

We looked up Judith Collins husband’s CV to see if he had a background in food or exporting.  He is a former policeman who has a law degree.  Would he been appointed a director of a company trying to export milk into China if his wife was not a minister?       

 

That photo


The timing of the Prime Minister’s visit to China and the Collins scandal could not have been worse. What the public saw was yet another National Minister visiting China.  Then they saw the photo of the Chairman of Orivida playing golf with the Prime Minister and learnt he paid money to the National Party for the privilege. The feedback to ACT canvassers from National supporters has been very strong.  It has stirred up anti-Chinese feeling.  

 

Crony Capitalism 

It comes on top of a growing feeling that there is too much crony capitalism.  The Auckland Convention Centre contract will not go away.  Labour could make much more of the issue if the party had not just released its own crony capitalism scheme on steroids for iwi and the forestry industry.  The Greens want subsidies for solar power.  Winston Peters is worse. He supports taxpayer assistance to horse racing.  ACT is the only party opposing crony capitalism. Once politicians start picking winners such as roads of National significance it is a slippery slope. When a road is built just because the minister thinks it is a good idea then why not an underground railway?  Crony capitalism does not become right just because “your party” does it.  Crony Capitalism is always wrong.

 

Let him prove it 

David Cunliffe has announced Labour in its Industrial Policy will pick winners.  Jamie Whyte has challenged Cunliffe to set up a small investment fund, do some stock market picks  and show us he can pick winners.  See www.act.org.nz

 

How to get Kiwis to come home? 

On our trip to Aussie we met many talented Kiwis.  They are very conscious of the fact that they pay the same taxes yet get excluded from government programs.  The prices of housing in Sydney makes Auckland look cheap.  They all said they love New Zealand but not one was planning to return.  Every election for 30 years the Opposition says that their policies will attract home well educated Kiwis.  Doing the same thing and expecting a different result is a form of madness. To get Kiwis to come home we have to do something different:  Lower taxes, less red tape, more freedoms and more opportunities than Australia. 

 

The Auckland City Council is right

The Auckland City Council is right to oppose the government’s proposed earthquake code that will cost Auckland over a billion dollars and in a thousand years may save a life.  If the earthquake code is correct then the road speed should be 15 k an hour.  How can a life lost in an earthquake be worth more than a life lost in a road accident?  The new code does not make sense not just in Auckland. Our local garage provides a wonderful service.  The local council has advised that his one story wooden garage will need to be earthquake strengthened at ruinous cost. Insurance cost will see at risk buildings being strengthened without the government needing to do anything. What is the point of voting National if they impose this sort of red tape?

 

Pre budget speeches

The Letter has yet to see a pre-budget speech where Ministers say “This year it’s a lolly scramble”. It looks like we are going to see a giveaway budget.  National has averaged $250 million of new spending each year and this year it will be four times higher.  John Key is in effect saying “We are going to spend it all.  If Labour spends a dollar more the Reserve Bank says interest rates will go up”.  Did National ask the Reserve Bank “If we cut spending will interest rates go down?”  Labour in its last four years of office went on a spending spree.  National has kept nearly all the poor quality spending like family support. If National had just taken spending back to what it was in 2002, hardly slash and burn, income tax could be a growth promoting flat tax of just 18 cents.

 

Three strikes and the maximum

We see the National Party is claiming credit for the drop in violent crime because they say they are “tackling the causes of crime”.  Oh – name one cause the government has tackled?  How is it property crime has risen 14%?  A few individuals do most of the crime. There are 21 people who are sitting on two strikes. Soon one of these dangerous violent men will do their third crime but there are much fewer of them than the soft on crime brigade predicted.  Three strikes and then you get the maximum prison sentence is working.  Burglary is the crime that affects the most people. One burglar can do 600 robberies! Three strikes and the maximum jail time would put the professional burglars out of business.

 

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My challenge to David Cunliffe

The Labour Party has announced a return to “industrial policy”. If elected, they will decide which businesses and sectors of the economy will deliver the highest returns and promote them in various ways – most obviously, by subsidising them with taxpayers’ money. 

This policy effectively replaces the decisions of private investors with the decisions of Labour Party politicians. It would be a foolish policy if Labour Party politicians were not better investors than the private investors they will replace.

So, before asking people to vote for the policy, shouldn’t David Cunliffe prove that he and his colleagues really are better investors than those who do it professionally?

He could do this easily. Mr Cunliffe could set up a small investment fund – $5,000 would suffice to get started – and trade it in the months before the election. Since he claims to know better than private investors which businesses will give the best returns, his fund should massively outperform the NZX 50 and other stock market indices.

Mr Cunliffe will surely leap at the opportunity to establish his credentials as an economic planner. If he won’t take the opportunity, then we must conclude that he is only pretending to know which investments are best.

Mr Cunliffe talks a good game when it comes to investing. And he plans to put your money where his mouth is. But before anyone goes along with him, they should insist that he puts his own money where his mouth is.

So I challenge Mr Cunliffe. Trade the stock market in the months before the election. Publish your trades as you make them and explain how you arrived at your supposed knowledge of which investments are best. By the election we will be able to see if you really do know what you claim to.  

If you won’t accept the challenge, then withdraw your proposal to use taxpayers’ money to invest in the businesses that take your fancy.

The Left trying to solve problems created by their own policies

The Greens today claimed that the appreciation in Auckland property prices shows that a capital gains tax is needed. They claim that that the profits earned from investing in rental properties “draws more and more money into the market, pushing up prices at an unsustainable rate”. Taxing the capital gains on rental properties would supposedly discourage this investment and bring house prices down.
 
This ought to strike The Greens as strange. Investment should push prices down, not up. If the returns on rental properties are very high, profit seekers will build new rental properties in an attempt to capture a share of them. This will increase the supply of housing and bring prices down. That is how markets normally work.
 
The Auckland housing market doesn’t work this way because restrictions on land use, of the kind favoured by The Greens, make it hard to build new homes. As so often, the Left recommends meddling in markets to solve problems created by their prior meddling.

The Letter - 24 March 2014

 

 

24 March 2014

 

Policy not politics


 
“If only the media would give coverage to policy” says Labour apologists.  No one could accuse us of being a gossip mag so we have examined Labour’s latest policy release to see why it has been almost totally ignored.  On examination we agree that the policy deserves much better coverage.  

 

Apartheid; no whites apply


 
“Forestry and Wood Products: Economic Upgrade” is a boring title for a policy.  We have a new title “Only Maori can apply”.  See, you are already interested.  (We are not making this up.  Labour proposes a tree planting programme costing $20 million a year that is only open to Iwi).

 

Anti-New Zealand Steel ?
 

“Labour is pro-wood” says David Cunliffe.  Boring!  Why not say “Labour is anti-steel framed houses?”  Now we want to know why.  Does Cunliffe know that much of the steel framing for housing around the world is made in computer driven mills invented and manufactured in New Zealand?  New Zealand has three steel frame mill makers and they dominate the world market. The steel used in New Zealand buildings is manufactured in this country too.  
 

More leaks 


 
Labour could have got far more coverage for their forestry policy by saying it is Labour policy to force up the cost of home building.  If the country had used more steel framing the leaky homes scandal would have cost less.  Steel framed homes are now being exported to the islands because they are easier to erect and have less maintenance issues.   But surely what material you use should be your choice ?

 

Policies have consequences 


 
The biggest loser from the leaky building scandal is the Ministry of Education.  It is going to cost taxpayers tens of millions of dollars to fix all the leaky schools.  The fault is not the use of wood but a government policy to accept the lowest tender.  The worst leaky schools were designed by the same cheap architect.  Requiring all government building four stories or less to be built of wood will have unintended consequences like a five storey school because it is cheaper to build.  
 

Increased petrol prices 


 
Buried in Labour’s “pro wood” policies is a proposal that companies needing to buy offsetting carbon credits must purchase 50% of their carbon credits from New Zealand forestry owners.  It is called global warming for a reason.  A New Zealand carbon credit is no better for the environment.  Labour admits New Zealand forestry owners will increase the price of ETAs but then say “COST: This measure will be revenue-creating rather than a net expenditure”.  That is like saying a tax increase has no cost because it raises government money!

 

Some goss

 
Where does this nonsense come from?  The transfer of the Central North Island forests to iwi has made Maori the nation’s biggest forest owners.  A new generation of Maori leaders whole work experience has been that wealth comes from the government.  How to increase the value of their forests?  Get the government to change the rules to force the country to use wood.  Iwi have lobbied Shane Jones who has been the driver of this potentially multi-million dollar gravy train.

 

Forced Consumption 


 
Jamie Whyte in his daily blog put the issue rather well.
“Yesterday my 10-year-old told me she had a brilliant idea to boost economic growth. She had learnt at school that much of the money earned in New Zealand comes from the food industry. So, she figured, if the government just forced people to buy more food, then even more money would be made from food and we would all be richer.
Only joking. My daughter isn’t that stupid. But apparently David Cunliffe is. On Wednesday, in a speech to ForestWood 2014, a gathering of the forestry  industry, he began by observing that forestry is a big part of the New Zealand economy. He then claimed that he could make it an even greater source of wealth to New Zealanders by forcing us to buy more wood. He would do this by using taxpayers’ money to build government offices and 100,000 “affordable homes” out of wood. 
Many of the assembled wood growers must have been thrilled. How delightful to hear a politician’s plan to force people to buy your products! But I hope that at least a few of them were disgusted. Mr Cunliffe’s policies are not merely a path to national economic decline. They appeal to immoral and anti-social urges: vote for me and I will prey on others for your benefit. 
Benjamin Franklin said that democracy is two wolves and a lamb voting on what to have for lunch. Mr Cunliffe should be ashamed of confirming this cynical view of his job.”   www.act.org.nz 

 

Fairfax media thinks ACT will do well


 
The Dominion last week ran a beat up that John Thompson, the president of ACT, has a conflict of interest because he is a Kiwi fruit exporter who supports the opening of the export market.  The story only makes sense if you believe ACT will hold the balance of power.  Actually it still does not make sense. The President of the Labour Party is often a trade unionist.  Labour was founded by trade unions to promote their interests.  The Fairfax papers have never claimed Labour having a trade unionist as their president is a conflict of interest.  Someone needs to tell the Dominion that ACT is a free market party. 

 

Govern Alone?


 
Maybe the Fairfax media is right that ACT will do exceptionally well.  In the  Herald poll ACT has gone from zero to .8%.  As a percentage increase that is an infinite increase.  Projected forward at that rate of increase ACT could govern alone.  That statement is no sillier than the commentary the Herald has run on its poll.  We are not trumpeting ACT’s spectacular rise because the margin for error in the poll is 3.5%. so ACT might already be on 3%. 

 

 

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New Zealand's manufactured education scarcity

The Herald reports that Auckland's growing population is putting pressure on its schools. Low decile schools are losing students to high decile schools. Parents shift their children because there is not enough of the education that parents want.
 
A growing population also increases demand for shoes, for flat-whites, for hairdressers and for just about everything else. Yet there is no shortage of these things. Why not? What is the difference between the supply of education and the supply of hairdressing?

The answer is that education supply is controlled by the government. In a normal market, increased demand first pushes up prices. This increases profits and encourages additional supply of whatever consumers want but has been in shortage.
 
In New Zealand’s state controlled education system, however, supply does not respond to demand in this way. Instead, students and parents clamber over one another to get into schools that they see as desirable.
 
Astonishingly, the officialdom simply dismisses parental concerns. They huff that the schools that parents are pulling their children from are perfectly good. The problem, they believe, is that parents are overly preoccupied with decile rankings.
 
The system is simply not responsive enough to the desires of parents and children. The preferences of bureaucrats and teachers unions are given too much weight. It is a cumbersome and unreliable process, as the current shortage of education in Auckland testifies.
 
Partnership Schools show the alternative. Take the example of South Auckland Middle School. The proprietors of Mt Hobson Middle School innovated and created education that parents wanted. Parents paid to send their children to this independent school. Then ACT’s Partnership School policy allowed its supply to expand.
 
South Auckland Middle School is taking an education innovation from Remuera to Manurewa. It is the flexibility of the Partnership School model that’s allowed this to happen.

The government should do what it can to draw the private sector into the business of supplying education in Auckland through initiatives like Partnership Schools. The creativity of social entrepreneurs is what we need to address New Zealand’s social challenges.

Labour and Greens serving business interests

David Cunliffe has decided to direct great wads of taxpayers’ money to the forestry industry. According to the Otago Daily Times, when “asked about the response from the industry to the policies, Mr Cunliffe said it had been ‘bloody good’, but that was not surprising, as the party had consulted widely with industry in putting the package together”.

What an astonishingly stupid question. Of course those who are about to be in receipt of taxpayers’ money think the policy is a bloody good idea. The questioner should have asked people in other industries, who will now face an unfair competition for resources, if they think it is a bloody good policy. Or he might have asked us taxpayers.

The Greens pulled the same trick last week when they boasted on Facebook that a solar panel producer had spoken favourably of the party's solar subsidy policy. Could politicians cosying up to business become the new norm under Labour and The Greens?

The harm done by industrial policies of the kind Mr Cunliffe and The Greens promote cannot be observed in the fortunes of the firms favoured by the government. For example, the Detroit car manufacturers bailed out by Obama may now be thriving. But that doesn’t show the policy worked. The cost of the policy is the opportunities for other productive activities that have been forgone because of the forcible transfer of resources to Obama’s favoured firms.

Alas, those lost opportunities are invisible. Whereas the joy of those being offered a meal at the tax-funded trough is all too obvious.

On Cunliffe's policies of forced consumption

Yesterday my 10-year-old told me she had a brilliant idea to boost economic growth. She had learnt at school that much of the money earned in New Zealand comes from the food industry. So, she figured, if the government just forced people to buy more food, then even more money would be made from food and we would all be richer.

Only joking. My daughter isn’t that stupid. But apparently David Cunliffe is. On Wednesday, in a speech to ForestWood 2014, a gathering of the forestry industry, he began by observing that forestry is a big part of the New Zealand economy. He then claimed that he could make it an even greater source of wealth to New Zealanders by forcing us to buy more wood.  He would do this by using taxpayers’ money to build government offices and 100,000 “affordable homes” out of wood. 

Many of the assembled wood growers must have been thrilled. How delightful to hear a politician’s plan to force people to buy your products! But I hope that at least a few of them were disgusted. Mr Cunliffe’s policies are not merely a path to national economic decline. They appeal to immoral and anti-social urges: vote for me and I will prey on others for your benefit. 

Benjamin Franklin said that democracy is two wolves and a lamb voting on what to have for lunch. Mr Cunliffe should be ashamed of confirming this cynical view of his job.  

On house prices and anti-foreigner sentiment

The prices of residential homes are high because land use restrictions, of the kind supported by the Greens, create an artificial scarcity. But the Greens don’t see it that way. They think the problem is not insufficient supply but excessive demand. So Russell Norman today announced a plan to get land prices down by stopping New Zealanders from selling their land to foreigners.
 
According to Russell Norman, “if you took 10% out of the demand side, you would go a long way to stabilising prices”.
 
Perhaps you would. But there are many alternative ways of doing this. Mr Norman might have suggested a ban on selling your home to a woman in her 30s. Or he could seek a ban on selling your home to anyone over 180cm in height or to natural blonds.
 
Of course, such prohibitions would be morally outrageous. And Mr Norman would never suggest them. But what makes a ban on selling your property to foreigners any less outrageous?
 
This combination of state-directed capitalism and anti-foreigner sentiment has a very ugly history. I am amazed that the Greens, who I had always taken to be misguided but decent people, should wish to tread that path.

Greens and National failing to commit to cost-benefit ratios

The government has spent $3.4 billion on Roads of National Significance. Yesterday the Greens announced their discovery that the benefit-to-cost ratio of the spending on these roads has been either “low” or “medium”. Since the money could have been spent on projects with high benefit-to-cost ratios, it has been ill-spent on these roads.

Transport minister, Gerry Brownlee, replied that the Auckland rail loop that the Greens want brought forward has a benefit-to-cost ratio of 0.8, which is not just low but negative.

It is a shame that the Greens cannot avoid making the very mistake they criticise. But that is irrelevant to the matter at hand. That your critics are keen on wasting money doesn’t mean that it is OK for you to waste it too.

Government spending is apt to be wasteful because the people who make the decisions are not spending their own money. That is why government spending should have to pass a benefit-to-cost ratio test.

According to Radio New Zealand, Gerry Brownlee said that the government is not fixated on benefit-cost ratios because there are clearly benefits from having a good roading network around New Zealand. This is hard to understand. If there are clearly these benefits, they should already be included in the benefit-to-cost analysis.

I fear that when politicians talk about benefits over and above those included in the benefit-to-cost ratio they are talking about political benefits. That is precisely why taxpayers should demand that the government be fixated on benefit-to-cost ratios.

The Land Transport Management Act 2003 was drafted, under the influence of the Greens, to allow more political input into land transport decisions though a Government Policy Statement (GPS) on land transport.  The NZ Transport Agency must now take into account the wishes of politicians in the GPS whatever their cost-benefit analysis says about the wisdom of these projects. 

The GPS has opened the door to extraordinary political discretion and potential waste.  We should close that door by amending the Land Transport Management Act 2003 to ensure that its prime objective is to provide New Zealanders with an efficient land transport system. That means applying the cost-benefit analysis to the pet projects of politicians in the GPS, not exempting them. 

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