Thursday, August 13, 2009

New Zealand Short Takes

The lights are on, but…

The National-led Government plans on “reforming” the electricity sector. Among the more unusual proposals are that consumers get a rebate if they’re asked to conserve power due to low hydro-lake levels. The idea is that power generators will want to avoid payouts and will “invest” so they don’t have to pay. Maybe…

The government also wants to allow electricity lines companies to sell electricity directly. They believe that increased competition will lead to lower prices.

Reportedly, Consumer NZ backs the proposals. I’m sceptical, however, because I think New Zealand is too small for real competition. The bigger reason I’m sceptical is the fact that the last time National led government they “deregulated” the sector causing prices to soar into the stratosphere.

Sell-off state assets on the sly?

During the last campaign, I said that if elected National would probably find a way to break its promise not to sell any state-owned assets, and that most likely that would happen by diluting the people’s share of ownership. Finance Minister Bill English is promoting a possible way to do that.

English wants “public-private partnerships” to build infrastructure and run core government services. Already the government has announced that private companies will build and run new prisons. Over the next five years, the government plans to spend $7.5 billion to build and upgrade schools, roads, housing, hospitals and telecommunications—all with private companies “partnering”. This will mean transferring ownership of at least some assets to private companies (in the campaign, National proposed that all school buildings be privately owned and leased back to schools).

English believes that these “partnerships” will "maximise economic efficiency". Sounds to me more like a way to transfer ownership of the people’s property to private business, English’s openly-stated goal (not presently shared by the Prime Minister). Even so, I expect he’ll get his way.

Tax and spend

The National-led Government is also looking at possible radical change to New Zealand’s tax system. Among ideas being considered is reducing income tax and raising consumption tax, or GST, which is currently 12.5%.

The ideology behind this is a belief that income taxes “punish” hard work and that consumption can be reduced. Both beliefs are wrong: NO ONE turns down advancement because they might be paying higher taxes; any largely imaginary disincentive that income taxes create is offset by other factors that make people want to advance and move forward.

Consumption taxes affect the poor and working classes much harder than the rich. Just as a $4 loaf of bread costs someone making $15,000 a year a lot more as a percent of income than someone making $150,000 a year, consumption taxes similarly hit lower incomes harder than higher incomes. They also have fewer opportunities to cut their consumption.

This may only be a trial proposal, though, to see what opposition it creates or to make other proposals seem better. Like the other two items today, this will bear watching.

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