Bollard needs support of galvanized export sector

Dr Bollard needs the support of a galvanized exporter sector.

"Dr Bollard's comments about the need for a speculation tax are underwhelming in light of the rise of the NZD to 70 cents against the US dollar and the damage another bank fuelled property bubble will do to our economy. It's time farmers and exporters joined together to tell the Prime Minister that Dr Bollard needs more sophisticated tools as the OCR is a very blunt instrument," says Selwyn Pellett, spokesman for the Productive Economy Council.

It is the PEC's position that property speculators are doing serious damage to the economy, aided by the banks and our outdated monetary policy. The PEC calls on Dr Bollard to be more candid with the country about just what the relationship between property speculation, monetary policy and the bank's behaviour is and the effect it is having on the economic outlook for the country.

"Speculating Baby Boomers have created the pull for foreign capital via the banking system, with the support of PAYE deductions in our tax system. That process drives up the dollar and kills our export sector, while making our housing some of the least affordable in the developed world and giving us one of the highest levels of National Debt," says Pellett.

"There is no way, based on underlying economic fundamentals, that our dollar should be at 70 cents against the USD and its current value is the result of pure speculation by FX traders." he says.

"The FX traders know that Dr Bollard will be under enormous pressure to increase the OCR soon as bank-fuelled inflation takes off, taking interest rates and the dollar up with it. For an FX trader within a bank this is simply a license to print money, so they are queuing up now ready for the destructive joy ride they will have at the expense of our economy, " says Pellett.

Commentators have pointed out in detail how many of our politicians are involved in property speculation and one has to wonder if that is delaying them acting in the national interest. We have increased our indebtedness as a country to a net level of around 100% of GDP as per the graph below.

"The reality is that trading the same small pool of properties internally, fuelled by foreign debt, will do nothing for the long-term health of New Zealand's economy. We are been driven towards an Icelandic event," says Pellett.

"Every property speculator who participates in this stupidity needs to hold their head in shame. People are going to lose jobs as a result of the increase in the dollar which has already gone from 50 cents to 70 cents against USD this year," he says.

"For an exporter with flat sales that's like taking a 30% cut on the revenue line which will translate to negative numbers at the profit line unless they reduce staff costs. That always means job cuts. As a country we still have the same asset (house or farm) but we are more in debt to foreign banks (gross debt is 150% of GDP and net around 100%) with less income to service that debt because of the effect on exporters."

"I know this isn't intuitive when presented by the economists, bankers and politicians but the simple fact is that you don't need a degree to understand what the result for all of us is when you have the same unproductive asset, with more and more debt and less and less income to service it. This is no way to run an economy, but it has become the New Zealand way. John Key needs to stop worrying about his image and popularity and act in the national interest," says Pellett.

"Allowing PAYE deductions on secondary properties while not having a capital gains tax at exit is in reality a Poverty Tax. What it means is those that don't have the money to speculate pay a portion of their taxes to subsidise property speculators. A good question in the House right now would be: "How much are we borrowing this year to fund PAYE rebates to property speculators?" "

"John Key needs to face the truth. Property speculation is an onerous tax perpetrated on hard-working New Zealanders, including the export sector, by a few irresponsible people. It comes at the expense of our economic sovereignty and he must stop it. Give Dr Bollard the tools and remove all tax loop holes related to property speculation," says Pellett.

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