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

Aussie apple ban bannedNearly a century of protectionism may be about to come to an end after Australia's ban on New Zealand apple imports was ruled illegal by the World Trade Organisation.Australia banned imports of New Zealand apples in the 1921, claimi

NBR staff
Fri, 13 Aug 2010

Aussie apple ban banned

Nearly a century of protectionism may be about to come to an end after Australia’s ban on New Zealand apple imports was ruled illegal by the World Trade Organisation.

Australia banned imports of New Zealand apples in the 1921, claiming there was a risk of spreading the fireblight apple tree disease to that country.

Australia also raised concerns about European fruit canker or apple leaf-curling midge; in other words, the country that later brought us the under-arm used every excuse in the book to justify an underhanded trade-blocking tactic.

TV reporters were quickly dispatched to canvass the opinions of Australian apple growers, who made noises about the dangers of fireblight before letting slip their real fear: competition from New Zealand growers.

Oh, the poor darlings. Life’s a bitch sometimes isn’t it?

New Zealand apple growers are looking forward to competing with the Australians, estimating access to the Aussie market could be worth $50 million a year, while allowing exporting during months when apple exports out of New Zealand usually shut down.

In other words, apart from the Australian government’s attempt to delay the inevitable by appealing the decision, there is no downside in this for New Zealand apple growers.

No chance of success
But all the appeal will accomplish is to buy the cosseted Australian apple growers a few more months free of competition from their New Zealand counterparts.

None of the previous appeals to the World Trade Organisation against illegal trade ban rulings have succeeded.

That won’t put the Australian government off trying, because there are plenty of political points to be scored on the issue with the election looming.

Former New Zealand Ministry of Foreign Affairs and Trade (MFAT) adviser and now Tauranga-based trade law specialist Murray Denyer, who worked on the apple wrangle for three years said the issue could have been resolved years ago but for powerful lobbyists in politically marginal seats in Australia.

The archaic apple import ban is one of the few remaining stumbling points in closer economic relations (CER) between New Zealand and Australia.

Hopefully in a few years the issue will be forgotten and Australian shoppers will be happily buying Kiwi apples from their local supermarkets.

Welfare’s growing cost

While the $50 billion figure that made headlines was certainly alarmist, the Welfare Working Group’s report shows that unless welfare is fixed it will remain a huge social and financial cost to New Zealand.

After it shied away from virtually all the recommendations of the 2025 Taskforce report, National is left with welfare reform as one of the few remaining avenues to grow the country’s wealth, improve social cohesion and keep its right wing supporters happy.

It’s not the roughly $6 billion of taxpayer money spent per year on welfare but the disastrous social effects of inter-generational welfare dependency that should be the main impetus for change.

However, the public’s understanding of the issue hasn’t been helped by some disgracefully poor reporting by the media.

One News focused on the unemployment benefit and how few people stay on it for more than a year, ignoring that it is the other major benefits (sickness, invalid and domestic purposes), the ones that people stay on for a long time, that the Welfare Working Group is focusing on.

Of the 356,200 working-age people receiving benefits at the end of April only 21% were on the unemployment benefit and this number is higher than usual because of the recent spike in the jobless rate.

Nearly 100,000 were on either the DPB or invalid’s benefit (98,300 and 95,700 respectively), with a further 65,700 on the sickness benefit.

It’s important when dealing with the issue not to “bash” the beneficiaries themselves but the system they operate in and the many warped incentives it contains.

A recent series of stories about the DPB by the New Zealand Herald’s Simon Collins showed that sole parents often get more than $700 a week once all the various welfare payments are added together.

With this sort of money on offer it’s entirely rational not to want to go into paid work and slog it out earning the minimum wage when you’ll be left much worse off.

However, it’s also easy to see why those who work 50-hour weeks and earn less than some beneficiaries feel a sense of resentment towards them.

But they should direct their anger not at their beneficiary neighbours but at the politicians who allowed welfare to get into the mess it is today.

An even bigger problem ignored
But while National seems willing to at least confront the issue of New Zealand’s escalating welfare bill, it’s ignoring the nation’s largest and most expensive group of beneficiaries.

More than half a million New Zealanders receive New Zealand Superannuation and they will cost the taxpayer a whopping $9 billion this year, more than all the classes of benefit put together (including the accommodation supplement).

However, unlike the “bludging” beneficiaries there doesn’t seem to be the same level of public angst towards people receiving a taxpayer-funded income by virtue of being old.

Part of this is due to the mistaken idea that the over-65s have “paid their taxes” so therefore deserve to be recipients of some taxpayer largesse themselves.

The problem is that when the current crop of retirees were paying taxes the proportion of the population over 65 was smaller than it is now, at about 8% in 1966 and 10% in 1988.

Now over-65s make up 13% of New Zealand’s population and this number is projected to grow to a whopping 26% by 2051.

Clearly the younger generations have got the short end of the stick when it comes to paying the amount of tax required to support the health and lifestyle of their elders.

So why is National focusing on “unsustainable” welfare while completely ignoring New Zealand’s even less sustainable superannuation situation?

I’ll leave the cynics to answer that one.

Allied Farmers’ Hanover hangover worsens

This week’s announcement by Allied Farmers that another $30 million has been carved off the value of the assets it acquired from Hanover last December was unwelcome but sadly unsurprising.

Allied says the assets are now worth $94.3 million, more than $300 million less than the initial value of $396 million and down $81.2 million disclosed on the interim financial statements for the December 2009 period.

It’s another blow for Hanover investors, who compounded their initial blunder of opting for moratorium over receivership by voting to swap their Hanover investments for shares in Allied Farmers that have plummeted in value since the deal.

The news attracted a flood of comments on NBR online, with the management of Allied Farmers coming in for particular criticism.

One commenter, ‘Ben Franklin’, said he was amazed by the “staggering naiveté” of the Allied board.

“Caveat emptor is the golden rule and especially so when dealing with guys like Eric Watson.

“Messrs Loughlin and Alloway no doubt saw this as the deal of a lifetime - now it will define their careers and haunt them forever. Their egos and desire to be big hitters have cost them and their shareholders dearly.”

Another commenter, ‘The Real Red Dog The Pirate Guy’, said, “The Allied boys are country bumpkins suckered in by city slickers.”

Too stupid to be saved
However, commenter ‘Ray Spring’ said the responsibility now rests “squarely where it belongs”: on the shoulders of the Hanover Investors who voted for the deal with Allied Finance.

“A fool and his money are soon parted. They are the legitimate prey of our financial system.”

While they can point the finger at Eric Watson and Mark Hotchin, or at the Allied Farmers management team, the investors have only themselves to blame for ending up in this predicament.

Expert commentators warned them repeatedly about the risks of opting for a moratorium deal but like scared sheep the investors were fooled by the spin from the Hanover camp.

With the Allied Farmers deal the process was rinsed and repeated.

One can only imagine how different the situation would be if receivers had been called in at the first opportunity (liquidators likely would have joined the fray soon after).

If Allied Farmers ever goes into receivership the former Hanover investors will, as shareholders, be lower on the creditor food chain than they would have been in a Hanover receivership.

The investors had this spelled out to them before the deal but fear and gullibility are more persuasive for New Zealand investors than cold hard logic.

NBR staff
Fri, 13 Aug 2010
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The good, the bad and the ugly – NBR's plays of the week