Top Menu

Graph unemployment in New ZealandGareth Morgan

Unemployment on the march: Whose Fault?

Graph unemployment in New Zealand

You get the politicians, the policies and the outcomes you want. Don’t blame anyone but yourself.

Personally I wouldn’t blame the exchange rate, the government, or any lack of entrepreneurship. The world is really struggling if you hadn’t noticed and the ability of our firms that export or compete with imports, to maintain sales, is being whacked. From that much flows – reduction of investment spending by these firms, a drop in orders for raw materials and commodities, and sackings of personnel. And then we see all the knock-on effects through the towns in which these outfits are sited.

That’s then the reality we face – and with Greece, Spain, Portugal all still basket cases for the Germans to spend their money on; and with the US having to “DO SOMETHING” before the automatic tax increases and spending cuts of the legislated “fiscal cliff” take effect and impose austerity on that economy, plus China still in search of an end to its growth slowdown – you could be forgiven for thinking that New Zealand faces a far more hostile global environment yet before we can be confident our economy has stopped softening. But hey, Auckland properties are on a tear so we’ll all be in clover soon.

If you believe that your myopia really is fatal. What can the authorities do? Yes the global slowdown is not their fault but does this mean they’re helpless?

Let’s start with the Reserve Bank which, faced with one of the lowest inflation rates in the developed world is maintaining one of the highest interest rates. What sort of time warp are these folk in? Their monetary policy settings have no justification whatever. It persists due to intellectual sloth.

Then consider their prudential policy that they have just arrogantly conceded might have played a role in the housing market distortion and the grotesque misallocation of investment monies over the last twenty years. Better late than never I guess but that’s as close as we’re going to get to an acknowledgement from the RBNZ that their last two Governors and RB Boards should have been sacked for incompetence over the conduct of prudential policy.

The Bank goes on and on about stress tests and purports that unless the favouritism they extend to mortgage lending is going to lead to a banking collapse then it must be right, No matter it’s been responsible for steering scarce capital into the business of multiple housing ownership and starved the finance to manufacturing and  service industries. With a Reserve Bank like that who needs politicians to deny economic and employment growth? The issue with setting prudential limits on the various types of bank loans shouldn’t be narrowly focused on avoiding bank collapses. Setting these limits should take account of the impact they have on the year-to-year functioning of the whole economy, how they are influencing the allocation of investment monies across industries and households. The Reserve Bank’s influence on our economy via its prudential policy for the lending shops out there is massive. When you have a situation where a mortgage loan can be 3 or more times as attractive to a bank as making a loan to a business, it is just nonsense to argue the Reserve Bank isn’t determining the shape of our economy.

We are over-invested in housing and under-invested in business sectors, everyone who’s not into property speculation agrees. We have high unemployment because investing this way produces lower incomes and fewer jobs. The Reserve Bank’s directives to banks on where and how much they should give preference to the various types of loans, sits right at the heart of that distortion. It is responsible for paradox of a jobless property price bubble we are now experiencing – totally responsible.

Now let’s turn to the tax regime. We know that the biggest mugs here are PAYE tax payers. If we look across our society at the ratio of tax paid to wealth, the tax burden falls markedly as wealth rises. If we look at the ratio of tax paid to the increment to wealth enjoyed each year (so taxed income plus capital gain) we see the tax burden plunges the more people make. It is pretty clear our tax regime is broke. Then consider that families on $100,000 taxable income can qualify for a benefit from Working for Families – and you see just how broke it is.

The timidity of politicians to shirk the responsibility of leadership in favour of personal tenure is what leads to this ingrained inertia on policy improvements. For example, we hear over and over the concession that taxing capital is preferable to taxing one form of the increment to capital (declared income), but nobody has the fortitude to bring in a capital tax to close the loopholes.

You get the politicians, the policies and the outcomes you want. Don’t blame anyone but yourself.

[message_box title=”Latest Post” color=”red”]National Minister mouthpiece for dirty dairy – Yet another demonstration of the National cabinet’s open hostility to environmental protection… Read more[/message_box]

  • bernardchickey

    Self interest seems to be driving force for voters and politicians at the moment.
    The demographics of voting seem to entrench the current system.
    And the hollowing out of the younger workers as they leave for Australia seems to set these policies in stone that benefit older property owners.
    How can that be broken?
    How do we appeal to older property owners to give up something for a younger generation?

    • Gareth Morgan

      Bernard, I agree that a major inter-generational problem has been generated by the policymakers’ inability to nip this issue in the bud. This problem with property versus other investment options has been building for 30 years. In other countries it’s been addressed of late by a crash in property values – New Zealand hasn’t had the realignment yet, and of course the longer that is the case the more likely people won’t believe it will happen and will accordingly keep over-investing in property. For politicians it’s a real prisoner’s dilemma, to solve it they could be condemning themselves to (political) death. You ask how can it be broken? In my view it will be broken by a shock – just as has happened overseas. Certainly no politician will grasp the nettle. Every second day now you hear them saying how important taxing capital is but unless you include owner occupied housing it’s a waste of time. And then in the second breath they acknowledge that without that any capital tax won’t work.

      My beef as you know is really with the Reserve Bank that is not elected. It needs to address the distortion its causing by telling banks to lend on mortgages in preference to all other forms of lending. It does that to protect the banks from going under but in the process it has underwritten a monster and distorted the economy. I’m aware it is just slavishly following the Basle II rules but my point is that with the tax advantages property ownership affords in NZ, the distortion of applying Basle II capital adequacy rules here is more gross than elsewhere. Oh well I think I’ll buy another house this afternoon.

      • Ross Calverley

        Who appoints the RB Board Gareth? If elections do happen won’t we have the same problem as with our politicians?

      • hohum

        Surely underwriting is the banks own job? i.e the Banks shouldn’t loan to bad risks? It is madness. Banks don’t loan to businesses or the business interest rates are painfully high, therefore driving businesses to the wall, so they then see businesses as a higher risk therefore put up their lending rates to them and the cycle of insanity continues. The country loses jobs and investments in business and so people sink their money into housing. There are not that many ‘multi-dwelling’ owners that a capital gains tax on investments would hurt any political party…they might win votes because houses would then be sold at a more realistic value to the ordinary struggling middle-class family.

      • boranin

        Well, I am scared to hear that “it will be broken by a shock”. As an ordinary Alex and someone who has no power and influence to change anything, I expect you, Gareth and Bernard, people who are visible and respected in NZ, to start the right change rolling. I don’t know how, but with more presence in the media, anything is posible. I hope you find a way, because someone have to; for the sake of this beautiful country and all its citizens. Alex

        • peter

          How can These people be respected…its people like your talking about who are causing these problems…

          • Chris Murray

            I think Peter if you read Gareth’s comment again you will see that he is supportive of a capital gains tax. You should also not that he has already given away a substanstial portion of his wealth.

          • Gareth Morgan

            Just to clarify – I am supportive of a capital tax/wealth tax which is different to capital gains tax. See this post for an explanation of the difference

          • Neil

            Amen to that idea Gareth – it’s been a similar thought to mine since I as at high school – usual reaction is I’m a lefty or commie – no idea why it gets that reaction.

          • Paul Scott

            Chris the soup green does not want a gains tax, it wants an asset tax, what do you have give it
            to me Chris and now,

          • Don Robertson

            Maybe he did invest in property – if the rules are written to make property the smart investment, he would have been silly not to.
            But he made most of his money investing in a start up company that did very, very, well. That business now employs a lot of people, and makes a significant contribution to our economy.
            Most people would have expected ebay to have come into NZ and dominated the market, as it has in Australia and the UK. Success was not certain.
            Compare him to another prominent New Zealand multi-millionaire ….

      • peter

        Gareth, Capital gains tax does work. The reason you don’t like it is because we will be taking half your mega fortune legally and giving it to the poor …Capital gains tax will raise approx $4.5billion per year. FACT. This will get rid of our massive daily rising debt. We will be self sufficient. We can invest in manufacturing. Children can be fed, oh and even the people of Christchurch can be given running water…So please don’t say what Key says in that Capital Gains Tax does not work.

        • Gareth Morgan

          I actually want a capital or wealth tax not a capital gains tax – it is far more watertight, so not sure how you conclude what you do Peter

      • Chris Murray

        Gareth, What will happen in 5 – 10 years time when all of the baby boomers start releasing all of capital currently tied up in their properties? Won’t this put downward pressure on property prices and drive consumer spending?

        • Gareth Morgan

          Possibly – or their property price expectations could be disappointed and because they don’t free up as much equity as they expected, the save more and spend even less

      • Neil

        Gareth – can you tell me – is our reserve bank the same as the Fed in the USA?

    • Paul Scott

      cheers Bernard , you are a complete moron,tax your mothers home Bernard send it to my daughter, capital gains Bernard hahha

    • jh

      From my own experience, a lot of older home owners are saying: “my children will never be able to afford a house”.
      You also get the modest earner who has rental properties and thinks: (as one blow hard put it) “I’m a rich man”. These are the types who live well taking regular overseas trips etc.

      One problem is the complexity of economic arguments. Despite what Gareth has written being as plain as your nose (to Gareth), people don’t get it.
      The media (also) use economists with a axe to grind as the experts and the advertisers aren’t happy if the wrong person makes it on the screen.

  • Raf Manji

    Put the RB Act in the bin, where it belongs and dig out the 1933 version.

  • Realist

    As long as our government has the goal of a ‘low wage economy’ the result won’t change. It is a fundamental inability to grasp the bigger picture that is plaguing the leaders and business owners of this country right now. All businesses are putting their prices up because they have rising overheads, but none are increasing wages. This creates a situation where profit margins may improve, yet turnover will decrease because it doesn’t matter how good your margins are if no one can afford to buy your products/services. This leads to layoffs and exacerbates the problem even further. We need to re-educate business owners in this country about the value of staff and the benefits of affordability.

  • Joanne Nixon

    So much sense…why why is it not listened to

  • Johny

    Gareth you should really start a think-tank so we can all contribute to these discussions.

    • Gareth Morgan

      This is the think tank Johny. Everyone is welcome to comment here if they think they can can add value

  • Kevin Middleton

    Very true indeed,but like most awsomeness things in life,the truth gets hidden by all the snowballs of progress,”the hurry-up to the stop light mentality”.

  • peter

    Stop blaming the world! We are too small a nation to make a tiny bit of difference…People like you need to start investing in goods and services that make a real difference…Get the high dollar down …start brining in the tourist (duh …they are our biggest export…or did you think dairy was???) Get rid of dairy polluting our country…for fat cats like you taking taking taking…you make me sick…does Mr Key own you as well?? We could make a difference if we stopped money going off -shore…

  • peter

    Stop blaming the world! We are too small a nation to make a tiny bit of difference…People like you need to start investing in goods and services that make a real difference…Get the high dollar down …start brining in the tourist (duh …they are our biggest export…or did you think dairy was???) Get rid of dairy polluting our country…for fat cats like you taking taking taking…you make me sick…does Mr Key own you as well?? We could make a difference if we stopped money going off -shore…

    • Lynda Dods

      Stuff the tourists, we need manufacturing. It is manufacturing that creates jobs for all those people who dont have degrees and a thousand years of experience. This country is shutting down in case nobodys noticed. There are some of us who remember what a vibrant society we used to live in before greedy business owners started moving off to China in search of the Good life for themselves by investing in slave labour. Meanwhile, our factories and export goods have virtually shrivelled up to nothing. We need to slap steep penalties on business who move their production off shore, and make it easier to set up production in New Zealand.

      • peter

        I agree with all you have said above. If what you say is correct, then Gareth also needs to be held accountable. The companies he has invested in have all moved to china or some other eastern country. However i stand by the tourism point i made as this is a very easy fix…in turn we can create more manufacturing jobs off the back of the tourist dollar…we can and should be self sustaining… lets show the world what we can do, but first we need to get rid of or heavily tax the very rich in this country to assist in training and medicine…why are we the only country in the western world where we have no capital gains tax? why should someone who sells many houses or sells millions of dollars worth of shares and not pay tax???? are we mad????

        • Nick Sykes

          It’s too late shutting the door after the horse has bolted. Tourism is fine, but given that the worlds finances are stuffed,where are all these tourists coming from? If people are having trouble surviving basic costs,where is the money coming from so that they can scoot around the planet to NZ to bail us out? You are a townie bigot! Dairy is our biggest earner and on a planet with out of control human breeding,the demand for food is only going to get greater. It doesn’t matter what any banker or politician does,80 years of greed will very soon have it’s day of reckoning with a Depression that will make the 1930’s look like a sunday afternoon picnic!

          • peter

            I live rural to start with. The pollution from dairy is massively overwhelming, so firstly the dairy farmers have caused the total destruction of our waterways. Secondly YOU people live in a monoculture society. The kiwi fruit industry is going due to disease. This government has not compensated one of the farmers yet for their loss of income – as they prop up the dairy industry. Dairy is not the biggest export in this country. You idiots believe it is but it is no way near that of tourism and educational tourism…which by the way this government is stopping visas to overseas students entering NZ …why? Overseas students contribute nearly half the funds per year for all tertiary education establishments. So dairy farmers when foot and mouth enters your food chain due to the waters ways becoming disease ridden which you are doing a nice job on doing – please don’t ask for the public to bail your rich fat arses out of the “cow shit”. AS for producing a good dairy product you are very very stupid. the dairy farmer up the road from me feeds his cattle on seed…you bit thick? cows eat grass NOT seed…god knows what damage and suffering to the animal you are creating by feeding them seed. Cows eat grass!! and as for the end product …not good as there are no goodness in the milk as you are feeding them on the wrong food…GRASS is what cows eat…understand?

          • Nick Sykes

            You missed my point(s) entirely. Where are the tourists coming from when they have no money? Farming keeps producing year in year out regardless.With a world population estimated to have doubled in 40 years survival will be the primary goal. As for diseases,they only get spread around the planet because of human movement (tourists). Cows primarily eat grass because that is what humans dictate they eat…understand? I won’t say any more since your last rant proves you cannot engage in intelligent discussion.

  • Butts_McButts

    Surely investing more in things other than housing means making things like savings more attractive. I can’t quite reconcile your thoughts on interest rates here Gareth – if you want more people to save and invest in capital or investments, surely having a higher interest rate is better than a lower one. You’d be mad to hold cash at the moment – even if real estate is taxed, a margin of 3% after taxes is hardly attractive. And if you throw on a capital gains tax and lower interest rates, isn’t that just making it easier for cheap credit to cover any margin lost to the CGT?

    It seems like we’re damned if we do, damned if we don’t. It’d be nice to see policies that encourage saving rather than just focusing on punishing property investors.

  • Lynda Dods

    yes the world is struggling alright however the ANZ is doing alright with record profits I notice. So why dont we get it right and say The Serfs are struggling. Somehow between 1975 and 2012 we apparently slipped back into the feudal system of the pre Elizabethan era. STill waiting for the trickle down after 30 years too, by the way.

    • peter

      I first came to NZ in 1989. This country was way ahead of most i had visited that year. Today it has fallen back to early 1970’s…What happened? We should be ashamed.

      • Andrew R

        NZ is nothing like it was in the early 70s. Then jobs were easier, we had more leisure time and more wealth.

        Where we are now is just the inevitable result of the failed neo-classical economic policies that have been ideologically applied here since 1984.

    • Wilson Owen

      The ANZ is making billion dollar profits in New Zealand – but recent retirees like me are struggling to get 4.3% on term deposits – if I bought ANZ shares in OZ I would be double taxed( taxed by Australia then taxed by NZ) – I am not allowed to share in their success on equal terms like Australian investors, –

      but they are permitted to operate their business on equal terms with NZ businesses here – maybe the NZ Government needs to act on this issue.

  • jh

    Truth has to go through the eye of the media needle and it’s high priests. Note the reaction to Greg Clydesdales “Growing Pains” paper.
    Who should be on Closeup tonight telling us all about what employers want: It’s Professor (Mr Populataion Increase*) Paul Spoonley.
    * and as the population grows Auckland becomes a better place to live (Q + A).

  • Clive E Rivers

    The manufacturing nations of the world in their perpetual search for cheap labour, have all moved their production base to China and in doing so have turned their own countries into consumer nations forced to buy back product from the Chinese. Until everyone realises that manufacturing must return to the country of origin, the situation will only get worse.

  • Sandy Price

    I agree that it is ridiculous that a bank will lend at 6% on residential but charge 16% to a business. Often wondered if smallish investors are able to lend to small businesses? If not through the sharemarket, what is an avenue to introduce small business people requiring capital to those with funds to invest?

  • Paul

    Making a lot of sense to me. The country would appreciate it if you become finance minister.

  • mack

    As i read all comments i put my tablet down and headed to the kitchen for a couple of panadol my head was hurting its like everyone had Phd’s i couldn’t understand a thing i did understand was how obviously true your statement was BLAME YOURSELF and ill tell you why from a simpletons POV LACK OF MORAL FIBER

  • disqus_kw0rINhdDE

    Greed ,what happened to just getting by comfortably .why does everybody want to be rich? Its Everyman for him/herself what has happened to our communities?
    What legacy do we prepare for our children ?
    A hyper competitive cut throat world of greedy ,money grabbers with an disdainful disregard for the environment .endless so called development in search of ever increasing profits.profits,profits,and most importantly profits .
    Universities creating class divisions ,elitist individuals recklessly leading the working classes down pathways of ruination and lining there nests with the fruits of our labour and creating a legacy of doom for our children.
    The wealthy gambling with our countries future while the average Joe or younger person has to sit and watch it all go down the drain .
    Nothing is for the good of the people its either you have money and can play or you are just a minor irritation who doesn’t figure in the equation at all.
    Greedy people raping or country to satisfy a need to possess wealth, benefitting no one but the rich themselves,any social benefits will be given grudgingly as a result of legalities along the way (damn that will eat into my profits)

  • Jo Murphy

    I am an ‘older’ citizen who owns the home. But savings have gone on health maintenance, and the usual house expenses – costs like drains, upkeep of house, (painting it) and constant costs of disposing of green waste from (very small) but overgrown garden.Soon I will not be able to manage all the actual labour entailed. My solution to being broke? Buy down – really down (yes, it hurts, and yes there are tears) – get rid of ‘stuff’, it’s amazing how little you need! – and be thankful that the birdsong and sunshine are still tax-free.

  • wikiriwhi

    Reserve banks have got to be scrutinised and questioned far more profoundly. They seem to blink an eye at the rapidly multiplying global corporatism engulfing competition, growth, employment and exports. There was a time when the courts intervened. Microsoft for instance. Those days are gone along with Glass Steagal and corporate monopoly has ravaged Europe, the US and soon us

  • briby

    Well I left new Zealand 6 years ago to live in Germany.
    And have never looked back.
    See you need to work out what you want from life to me it’s about the time I am not working the enjoyment I get from my social life.
    You talk about wealth but truly you only talk about money a thing.,wealth is being able to have a few beers with your mate’s and not cost and arm and leg being able to get an operation immediately not waiting for ever on a list.
    Not working all life to pay debts and worry about food for your family.
    Until these things and more are addressed the more it will stay the same.
    Money is a thing resources are the issue how do we deliver them in a fare way

  • Neil

    OK – for the first time in my working life I’m out of a job – no redundancy – company has folded owing too much money and basically due to cash flow difficulty – going to be hard starting again at sixty-one I can tell you….

  • Paul Scott

    My God, Bernard below wonders why older people won’t give all their money to younger people. good on ya Bernard , good on ya Gareth, New Zealand for the welfare state, tax capital, tax income tax spending, My God where have all the people gone knock knock Gareth.

    • Curtis Antony Nixon

      Troll away PS – you are a fake!

  • Wilf Espin

    My uneducated perspective is simple.

    Worked my arse off for 45 years and effectively have survived, done what I could afford, and given my kids the best opportunities I could manage.

    Own my own house,or the bank does. Can’t see where that has been an investment, but it has been a lovely place to live and bring up my family.

    If I had to make the choice between investing in business or property, which I don’t. My dilemma, personally would be this.

    I have worked for business people and large companies and have found them to be ruthless, dishonest shifty pricks, to a man. bugger giving them any of my hard earned cash.

    I look at the state Christchurch is is and think that property is no sort of investment either. The house falls apart, the insurance company takes years to settle, you’re living in a pile of shit with The bank wanting it’s payments, the insurance company wanting it’s pound of flesh for a service it clearly doesn’t provide and there you are stuck,screwed!

    The wealthy will always be at the top of the shit heap, and why not. they concetrated at school, they took their chances and they won their game.

    The highly educated will always operate at a higher intellectual level than the likes of me, and wonder why I don’t understand half of their shit nor they mine.

    The only time I understand John Key, is when he makes a gaff and, accidentally calls it like it is, such as the Beckham comment, and good on him for that.

    My analysis of the worlds financial situation is simple and can be applied on as small a scale as you like, and tell me if I’ve got it wrong.

    Too many lazy bastards, too many mad bastards, too many cunning bastards, too many dumb bastards and too many thieving bastards.

    Certainly not enough bastards smart enough too put any of it right.

    For my part a simple strategy is in play,. Screw the world and it’s complicated bullshit. I’m selling the house and all my accumulated treasure, I living in my motor home and doing what I like, when I like. I may be out side you house right now, doing my laundry. in a bucket.

    Good luck guys, I’m out of the game

  • jh

    Tourism from China has grown, (while other markets are shrinking), witnessed by the number of Chinese born bus drivers parking on the Steamer Wharf bus stop in Queenstown or Agrodome in Rotorua. The generosity of the Minister of Immigration has landed them on their feet.

  • Paul Scott

    look I don’t care just send me Gareth’s UBI $8000 dollars per year,Ii don’t care about the widows home in Auckland , send money Gareth now,…

  • Paul Scott

    it must be difficult for Gareth and Bernard. explaining to their customers inheriting other peoples assets, the customers soup green brains they don’t understand the difference between just taking all the other people’s money by gains, or taking all their money here by asset. Its a socialist tax dears, don’t worry about a thing just stay in NZ , it will all be OK once the Green party comes


    die soon Hickey
    about Gareth Morgan