The good, the bad and the ugly – NBR plays of the week

Mining tax helps uproot Rudd

The ousting of Kevin Rudd from his job as Australian Prime Minister this week is a welcome reminder that voters aren’t quite as gullible as politicians believe.

And it is a warning to New Zealand’s Prime Minister John Key that no amount of popularity in the opinion polls is enough to insulate against policies that wreck the economy and needlessly cost people jobs.

Only a year ago “K-Rudd” held a tight grip on the reins of power that seemed unshakeable as his personal approval rating ran at record levels of about 70%.

What he perhaps benefited most from was Australia’s apparent economic strength as the “lucky country” was one of few Western nations to avoid a recession.

Unfortunately the “growth” was coming from increased government spending, in particular the misguided “stimulus package” that saw money thrown at dead people and even New Zealand residents, with instructions to spend it like there was no tomorrow.

Also boosting the GDP figures was the first home buyers’ grant that has successfully kept the Australian property ponzi scheme going long enough for the housing bubble in that country to overtake New Zealand’s as the world’s biggest.

But the problem for Mr Rudd’s Labor government was paying for all this largesse, which had caused the government’s deficit to balloon.

Parallels to New Zealand

This is where the RSPT (resources super profits tax) came in.

The mining sector was one of the only major sectors of the Australian economy to get through the recession without major government (taxpayer) assistance and with profits largely intact.

So the Labor government decided to thank the mining companies for carrying the economy on their backs by breaking their backs with a 40% tax on any return above the government bond rate of 6%.

This socialist policy of theft betrayed Mr Rudd’s background as a diplomat and bureaucrat – it showed a complete lack of understanding of concepts such as risk, capital investment and return on investment.

Career bureaucrats don’t understand how an industry like mining works – companies don’t just waltz up, dig a hole in the ground and start stuffing hundred dollar bills in their pockets.

It was telling that when Mr Rudd listed his proudest achievements from his time as Prime Minister they all involved giving certain groups of people money taken from those who actually pay taxes.

Much is made of the fact his successor Julia Gillard is Australia’s first female Prime Minister but while this may be a historic moment her gender won’t have any bearing on the most important factor for voters – their wallets.

And much of her support came from the unions, who are worried that whacking the greedy capitalist mining companies with an extortionate tax will cost workers their jobs.

With New Zealand’s emissions trading scheme due to begin next week (July 1) Mr Key would do well to take a close look at his Australian counterpart’s swift fall from grace.

It won’t be wealthy farmers and industrialists who throw him out if the ETS proves to be a political disaster– it will be the struggling middle-class voters who see their power and petrol bills increase and wonder where the tax cuts they voted for went.

Net migration figures go west

New Zealand is, as the horribly over-used cliché goes, a nation of immigrants.

Whether they arrived here on a waka centuries ago or on a plane ten minutes ago, everyone has come to these shores looking for a better life (you’d hardly go to another country looking for a worse life would you?).

And as a far-flung, sparsely populated island country, New Zealand is more reliant on immigration for economic growth than almost any other nation in the world.

Immigrants bring valuable skills and capital and benefit the economy whether they come here to clean toilets or to run major companies.

It’s not so much a chicken and the egg situation as a feedback loop – when the economy is strong more people move here which helps the economy grow even more, while the opposite occurs when the country’s economy is weak.

So when the net migration figures go south it is a big cause for worry but it would be more accurate to say they went west last month – to Australia.

Aussie outflow

Seasonally adjusted, long-term arrivals exceeded departures by just 200 in May, according to Statistics New Zealand data released this week.

This was the lowest monthly increase since 2008 and continued a recent slump in migration figures that has economists, not to mention real estate agents, worried about the ramifications.

It was well down from the average net migration gain of 1900 a month between February 2009 and January 2010 and if things don’t improve the annual gain of 20,000 in the year to April is set to fall sharply.

The major reason for the paltry net migration figure in May was the continued exodus to Australia, with 1700 more people going to Australia than coming back the other way.

While the number of New Zealanders heading across the Tasman isn’t at the levels reached in 2007 and early 2008 when a net 35,000 a year were leaving each year it is clear that the lure of Australia is still strong.

While there are other reasons for leaving, for many New Zealanders the decision to leave their friends and family behind is driven by higher wages.

But even if income levels do catch up to Australia’s there’s one gap New Zealand will never be able to close– the temperature gap.

At least there aren’t any snakes here though.

Hubbard under investigation by SFO

Commerce Minister Simon Power’s decision to place South Canterbury Finance founder Allan Hubbard, his wife Jean, his lending vehicle Aorangi Securities and seven charitable trusts into statutory management has sparked a storm of debate.

NBR Online’s stories about the sorry saga, in which the Serious Fraud Office is investigating Aorangi, have attracted a steady stream of comments.

Opinions expressed in the comments vary widely, with some suggesting the authorities are persecuting an innocent and honest man and others implying there was some sort of Ponzi scheme going on.

But one of the main themes is that Mr Hubbard’s old-fashioned way of doing business puts him out of step in the modern business world, as described by this comment on a story:

“My thought is that this will prove to be a matter of Aorangi not scrupulously documenting transactions, rather than any fraud.

“I don’t believe Allan Hubbard is a dishonest man; very much the opposite, but things done on a handshake in the past cannot now be so done.”

Couldn’t have happened to a nicer guy

The announcement about the SFO investigation and the Hubbards being placed in statutory management was a huge shock for many people.

This is because compared to the directors of some of New Zealand’s many failed finance companies Mr Hubbard has an almost saintly reputation.

Mr Hubbard is in many ways the anti-Eric Watson – a likeable old duffer who lives in a South Island backwater, drives a cruddy car and has probably never met a supermodel, let alone had a punch-up in the gents’ with Russell Crowe.

So it seems counter-intuitive that the authorities would go after him rather than one of the many Auckland-based city slickers with Ferraris, who make such attractive targets for a public tar and feather session.

The SFO alleges that many of the loans made by Aorangi are “inadequately documented” and appear to be made “contrary to instructions given by investors that their deposits be lent under the security of a first registered mortgage.”

Although it is not under statutory management South Canterbury Finance will no doubt be damaged by its association with Mr Hubbard, which is a worry when $2 billion of taxpayer money is at risk under the government’s guarantee scheme.

And the SFO will be under pressure to “get a result” to justify the extent of the action taken.

This is not a good situation for anyone involved.