Posts Tagged ‘economics’

The GST hike

The biggest reverse culture shock I'm experiencing (by reverse I mean NZ is obverse side of my little world) is that this country suddenly seems so hopeless. Everything in China, at least in big cities like Beijing and Shanghai is booming, building projects are happening in a lightning speed. China is also a world's second biggest, or biggest? market for luxury goods. My friends there are speeding their money like burning toilet paper, while I'm still counting every cent of my earnings.

Making my feeling worse is the price hike on almost everything. I only left the country for 3 month but everything seemed to have its price increased for several rounds, and I'm hearing the GST is also on the price hike list.

It's very difficult to avoid paying GST, it exists everywhere in people's daily economic life, making it one of the most effective revenue gathering machines for the government. There are many ways to avoid paying too much personal income tax, and tax on specific goods is more likely to decrease demand rather than increase the taxation revenue.

But of course this isn't all about revenue gathering. This is because Mr Key wants to give people tax cut, more specifically, the high income earners. In his speech made to parliament,  Key states that low income earners will be compensated through a upfront increase on benefits and working for families programme, but the trouble is, there's still very little details to see whether the compensation is enough to offset the GST increase.

Another feature of GST is that it treats every one equally, people all pay for the same rate. Statistics New Zealand says GST increase to 15% is likely to affect the CPI by a 2%+ one off increase, theoretically at least. What would really happen after the increase is still subject of a debate. Many New Zealand businesses advertise goods price ends with .99 just to make the price more appealing.  Many businesses will be facing a not so tough choice - whether to absorb the 2.5% increase themselves, or add it to the current price.

Well one of the phrses or excuses businesses just love to use is " we have to make profits".  So my guess is that the actual increase is likely to be more than 2%. Low margin and low price goods are more likely to get a $1.99 to $2.99 type of price hike as businesses are already sturggling making profit on those goods. Statistically, the overall increase would not be that huge, but the fact that troubles me is that low priced goods are more likely to be daily necessities.

I can't really quite understand the ideology behind this tax structuring apart from making high income earners happy. Yes this does give people more choice, as they got more money in hand - whether by more it means another 50cents or $50 in hand, is another problem. However, there are some choices people just don't have the choice, we all need food survive regardless whether you are high or low income earners.  The idea of removing GST on foods and petrol has been floating around for quite some time, but the government seems to have very little interest in it.

Capital gain tax is another thing government isn't very keen on. Speculating on real estate did make a lot of people rich, but that's at the expense of putting even more people at miseray. And most importantly, a healthy economy needs real economic activities,  new money has to be made - in the form of goods or services.  Prosperous property market sounds good, and looks good on GDP, but that's not real economy. It's unsustainable and who knows if he or she isn't the unlucky one or the greatest fool?

Government's very little action on these area does suggest me something they didn't tell. In his election promise John Key said he wants oversea kiwis back to their country and keep the young ones here. However, as a young adult myself,  the outlook of  me to stay in this country looks fainter every day, stuffs this government is doing, or not doing is making a graduate student  more difficult to make a decent living out of average wage.

TVNZ's real problem

The government.

TVNZ is not a fully funded state broadcaster like BBC domestic broadcasting because as a small nation, we probably cannot afford it. Therefore its channels carry adverts, and is exposed to the what Nats are usually proud to say "real business world" out there and needs to compete its way out.

Under the current economic situation, we see countless number of privately owned businesses experiencing significantly reduced profit, or even go into deficit. If you are an investor to a large corporation, you wouldn't expect your dividend to be as high as last year, or you may just get ready to sacrifise your dividend for a year to keep your investment safe.

So Why John Key, aka "the man with real economic sense"  is expecting a unrealistic dividend from TVNZ:

From the Crown's point of view we have $200 million invested in TVNZ, that's the equity in TVNZ, if we don't receive a return on that equity and we don't receive a dividend, that's less money the Crown has to pay for hospital beds, less money it has to pay its doctors and less money it has to pay its teachers.

Nice words, sounds sympathetic, but does it really mean anything? Last year TVNZ paid out $10 million to the government, don't tell me that our health and education system would fail for a shortfall of $10 million dollars.

As TVNZ is going to cut 90 employees, more pressure will be added to the dole queue. So what National government did is, forcing TVNZ to reduce costs by reduce amount of local made programmes (that's what state owned media is for, in my opinion) and axes kiwi jobs to meet government dividend demand so Mr Key can have more money to pay for hospital beds.

I hope those people who will lost their job could find a job soon otherwise the whole thing is just pointless - a large chunk of the few million dollars dividend will be used to pay the added dole queue anyway, when those people really should be working and contributing at least some value back to our society. Now you call that real business sense?

By the way, I remember this government was claiming itself dedicated to keep kiwi jobs.

It's very hard to believe there's no hidden agenda behind this movement.

equity under National

Government kills pay-equity inquiries:

The Government has axed two investigations aimed at improving the pay of women as it tries to save money by controlling public sector salaries.

... State Services Minister Tony Ryall said the investigations would "generate an additional form of remuneration pressure that is unaffordable in the current economic and fiscal environment".

I can't see how this National government is different from the one 30 years ago :  socialism for the rich, and capitalism and discrimination  for the poor. If bail out is a valid and effective way to save economy (which I don't necessarily agree), bailing out ordinary people should be as important as bailing out big businesses. Yes business needs to be saved but they can only prosper if there's a market for their products.

This is the same reason as why we need a minimum wage - far right people treat workers like "goods", and apply the basic supply-demand model to human being. In a purely economic sense that's perfectly true, and I can claim that if businesses only pay its workers five cent an hour, we will then have a nice 100% employment rate, but will that do any good to either businesses or workers?

Not to mention this is denying women equal opportunities as their male counterparts had.

There must be a balance, John Key was campaigned as a centrist and I hope he  keeps it that way, otherwise honeymoon could soon end with a backlash as the economy deterioates in the coming years.