Free Press October 12 2015

ACT’s regular bulletin

We Picked It
Dakang have pulled out of an Overseas Investment Office application to buy $42 million of dairy farms in Northland. The most capital-starved region in the country just lost $42 million. No amount of government programs in Northland can substitute for a place to do business. As ACT has said, we are now paying the price for ad hoc departures from the rule of law such as blocking the Lochinver sale.

Don’t Take Our Word for It
The investors themselves are quoted saying they have been chilled by the Lochinver decision. Free Press wonders if they have not interpreted the memo as saying: don’t invest here if your money is Chinese. This is what happens when the rule of law is replaced with arbitrary discretion.

Tinfoil Hat Sales Plummet
Not everything the Government’s been doing is bad for investment. The TPP is here, and the Government is able to reveal details. The Pharmac model will remain, an extra $2.7 billion economic growth is forecast by 2030, and the sky is still suspended well above the earth. It is a tribute to Trade Minister Tim Groser, who joins the stable of rare politicians who can say they made public policy better for all New Zealanders.

Hard Row to Hoe
Some complain about the light concessions on dairy. Two things to note: The concessions were small in percentage terms but dairy is a major export. Dairy concessions were the second largest by total value. Second, dairy is hard to negotiate there. The Canadian taxpayer will have to shell out $4.3 billion to compensate their farmers miffed at Canada joining the TPP.

$7,000 a Teat
Why the compensation? Canada’s dairy policy is diabolical. To milk a cow you must own a license. The licenses are scarce and that makes them valuable. Last time Free Pressfollowed these matters closely it was $28,000 per cow. Nobody can enter the dairy industry without buying quota, but how can Canadian dairy farmers compete internationally with this extra cost? They can’t, so the Canadian government charges 200-300 per cent tariffs on imports into Canada. Thankfully New Zealand got rid of such madness 30 years ago, and we now have the most competitive dairy sector in the world.

An Honourable Tradition
ACT has provided rock solid votes for free trade throughout its history in Parliament. Even when Helen Clark was in power, she knew she could negotiate confidently and count on ACT’s support for free trade initiatives. This wouldn’t be so if, say, Winston First held the balance of power.

The Golden Rule
They say who has the gold makes the rules. In the trans-Tasman relationship the Australians have it, literally and figuratively. Allowing for currency differences, GDP per capita is 32 per cent higher in Australia than here. Doing the same job, an Aussie earns $132 for the Kiwi’s $100. New Zealanders can complain endlessly about how New Zealanders are treated there but the fact is, we want to go there, they don’t (really) want to come here. They have the gold and make the rules.

The Gold Rush
For every one of the 50,000-odd Aussies here, there are more than 10 Kiwis over there. Of course people move for complex reasons but the relative performance of the two economies is reliable indicator of how many people cross the ditch. The recent reversal of this trend has made a miniscule dent in previous 40 years of Kiwis crossing.

Rhetoric and Reality
The rhetoric is that the lucky country has run out of luck while New Zealand’s economy powers on. In reality Australia’s economy grew faster than New Zealand’s for five out of the last seven years (one year was a draw). The rhetoric is that New Zealand and Australia have a special bond (look what happened to the Aussie PM who said that). In reality, they’ve shown goodwill is hollow and Jordan Luck asked the right question: Who needs who the most?

Remember When?
Once upon a time the Government was committed to catching Australia economically. ACT negotiated for the 2025 Taskforce to investigate the source of the gap and propose solutions to narrowing it. Sadly National has completely abandoned the report and the goal. When was the last time the Prime Minister talked about lifting economic performance compared to other countries?

Stockholm Syndrome
The business community has long chanted ‘John, John, he’s our man, if he can’t do it no one can.’ They are resigned to making paltry progress on the economy because they believe in a strange version of TINA (there is no alternative). TINA used to be the catch cry for economic reform, now it is the catch cry for being very grateful things aren’t getting worse.

Chicken, Meet Roost
The trans-Tasman productivity gap has been luxuriantly ignored by the National administration. It has not ‘mattered,’ in the sense that middle voters worry about it, for almost a decade. The confrontation with Australia is primal, though, and people will ask; why are we in such a weak negotiating position with the tribe across the ditch?

Five Business Friendly Things the Government Should Do Right Now
1. Privatise the remaining SOE’s. With high-profile losses at Solid Energy and more to come, it’s politically and economically wise to get out now
2. Index tax brackets to inflation. No taxation without representation. At the moment income taxes stealthily rise without voters being asked as inflation pushes incomes into higher brackets
3. Raise the pension age to 67 (the PM has said he’d rather resign, but he could simply announce that he only wants to do five terms, and that the age will begin rising from 2020)
4. Pass the Regulatory Standards Bill so that regulation must be tested against principles of property rights and freedom to trade
5. Reform the Resource Management Act. Properly. Replace the Purpose sections with commitment to sciences only.

Five Business Unfriendly Things the Government Should Stop Right Now
1. Wind up the Callaghan Foundation and let ministers bet their own money on the next big thing
2. Stop doing deals such as altering gambling regulations to get a convention centre built (then getting comprehensively out-manoeuvred in the contracting). Ditto, the Saudi sheep deal
3. Stop introducing complications to the tax system, e.g. Bright Line test and tax credits for impossible-to-define ‘innovative’ companies
4. Stop creating ‘co-governance’ models that ensure valuable resources are controlled by everybody and nobody
5. Stop making ad hoc decisions such as blocking the Lochinver sale after it had been through the correct process for 14 months.

Still Not Enough
Doing all of those things probably wouldn’t make New Zealand’s economy catch Australia’s in any foreseeable timeframe. Nonetheless they would all help, and closing the economic gap is the only thing that will make them take us seriously. Where is our Government on this issue?

ends

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