Thursday, July 26, 2007

Bollard Sinks, Cullen Laughs

As New Zealand, with head held proudly high, lurches towards a major economic disaster of its own making, commentators seem oblivious to anything other than press releases from trading bank economists, Reserve Bank governors and failed finance ministers. Bollard is in a murderous whirlpool of monetarist madness from which he cannot escape as he desperately uses his two stroke outboard motor (interest rates) in his futile and vain attempts to reign in inflation while Cullen stands on the bank, watching him sink while he (Cullen) refuses to go to his aid.

Cullen stands beside a shining and immensely powerful 200hp V8 motor which he leaves in it's greased paper wrapping.

All we hear about is how the dairy industry is our Saviour and therefore the economy is fine. Even Bollard himself said that this morning. The man has swallowed too much flood water. The economy is far from fine as the number of public servants increases in direct proportion to the number of real jobs which are sacrificed on the alter of our rising dollar.

Here are some of the truths which few economic pundits seem to have recognized.

Interest rates.

Increasing interest rates does not reduce the demand for residential investment properties. In fact, the opposite is the case because as interest rates increase, wealthy salary earners - mainly public servants - can avoid more tax as they tax deduct the interest payments on their TOTAL mortgages by deeming all their debt to be applied to investment properties. The law currently allows them to offset the tax they pay on their salaries by the expenses they pay on their investment properties. So, as interest rates increase, they just cover the increase by putting rents up and the poor pay more while the bloatocrats reduce their tax contributions.

Increasing interest rates very soon put genuine working families out of their own homes, Mr Cullen.

Dairy Prices

Cullen, Bollard et al are preening themselves and telling us how well off we are because there is a sudden shortage of dairy products worldwide leading to windfall profits next year. (As if Cullen had anything to do with this good fortune!) Bollard hopes these profits will be used to repay debt. They will not.

Cockies, when faced with the choice of retiring debt and paying even more tax on one hand and increasing debt and paying less tax on the other hand, will always borrow more money. What will they do with the extra debt? Well, they buy more farms and bid up the price of land so that it's even tougher still for a young feller to get started and then they look to diversify into non farm investments. What will they buy? Commercial and RESIDENTIAL PROPERTIES in Auckland. Why Auckland? Because that's where they will get the most tax free capital gain within a few short years.

Cullen's 200HP V8 which he refuses to use to save Bollard is the simple and long overdue overhaul of ridiculously lavish tax concessions available to salary earners through LAQC property investment and an equally long overdue crack down by IRD on tax free capital gains, each of which is a major driver of Auckland's booming housing market.

Talk of there being insufficient land for housing is nonsense. Is there insufficient land in Singapore? It seems most apartment blocks in Auckland city (and there are dozens of them) appear to be well occupied.

Cullen will not tame his own profligate spending; he will not take action to curb demand for residential property and he refuses to make the most fundamental change of all which is to reduce tax rates so that people no longer see tax avoidance and evasion as the only way left in New Zealand for a citizen to better him or herself.

Labour has produced a nation which finds it is so heavily taxed that it's people are forced into buying back their own tax money by bidding up the prices of their neighbour's homes.

No amount of interest rate hikes will fix that problem. Bollard is the fall guy for Cullen's cynical political chicanery.

1 comment:

Lucia Maria said...

Adolf, can I ask you something, since you seem to have more of an idea of what might be happening that anyone else?

Our mortgage is coming off a fixed mortgage rate in September. Should we be refixing for 2 or 5 years at that point? We'll probably be keeping 20% at the floating rate so we can pay it off early if we get income bonuses. Just the thought of having to fix at this level of interest is giving me the heebie jeebies, but it seems like it could continue to get worse for a while.