Follow up to leave NZ blog

Around a week ago I blogged about the good article in the herald by Bernard Hickey on why Generation X and Y should leave NZ. (http://www.brad.net.nz/blog/2009/06/bernard-hickey-tells-young-people-to-get-out-of-nz/)

Hickey followed this up earlier this week with a second blog on how to turn the tide and get people to stay: http://blogs.nzherald.co.nz/blog/show-me-money/2009/6/30/ten-ways-baby-boomers-redeem-themselves/?c_id=3

A summary of the key points:

I got quite a few comments from baby boomers (and younger readers) throwing their hands in the air and wondering what could possibly be done to solve the problem. They also pointed out it was no different anywhere else so what was the point of leaving. House prices have collapsed 20-30 per cent in America and Britain, effectively reducing the scale of the problem, while prices here have only fallen around 9 per cent here. Australian prices are more affordable in many cities because incomes are higher, although inner Sydney and Melbourne are pretty unaffordable.

But there is much our baby boomer leaders and their voter-enablers could do to fix the problem if they wanted. We all need to agree on a variety of things to lift our productivity and therefore our real per capita incomes at the same time as reducing house prices. Here’s 10 ideas:

1. Impose a land tax. It works in Hong Kong and is much cleaner, fairer and more efficient way to take some of the air of the land price bubble than a capital gains tax.

Agreed, but as pointed out last week would it ever be voted through?

2. Introduce a flatter, simpler system for income tax to encourage productive work rather than tax avoiding rental property investing and consumption. Here’s more detail here.

Hickey’s ideas for a flat tax system make a lot of sense, and is one thing I agree with, as far as income tax goes there should be a flat rate, why should someone who earns more be taxed at a greater proportion of their income, their tax take is greater than someone who earns less anyway because tax is based on a percentage of income not a fixed amount, and it is also likely that they will pay more in GST because they probably spend more as well.

3. Remove middle class welfare payments such as Working for Families and non-means tested interest free student loans. They create work for bureaucrats and create ruinously high marginal tax rates.

Working for Families is something that I do not agree with, and then introduce an independent workers allowance to counter it is just as dumb, reduce the bureaucracy, reduce the costs, overall everyone pays less tax and therefore has more in their back pocket.

Interest Free Student Loans is interesting. I believe they should have interest at CPI on them, this way the government does not lose out on any money that it loans out, and in return having a small interest rate would encourage people to pay it back faster as with zero interest there is zero incentive to pay it back. But using this as a means for the government to make money is not a good idea.

4. Extend the retirement age to 70 from 65 by 2020. Reduce the universal superannuation payment to 60 per cent of average wages from 66 per cent. We just can’t afford it and it will give us time to restructure our economy.

Meh, I am at a minimum 45 years away from retirement so by then I don’t think there will be any hand outs for me.

5. Open up monopolistic industries to competition wherever possible and regulate hard to restrain inflation wherever competition is not possible. The electricity and telecommunications industries come to mind. I’d love to see the power generators forced to sell their retailing operations and I’d love to see the Commerce Commission force mobile termination fees much lower to encourage a third mobile competitor.

Yup, and how about selling Kiwibank and Air NZ while we are at it, it makes no sense to be in a competitive market with State Owned Enterprises competing against others. There is a need for SOE in areas where they are the only providers but where they are not what is the need for them?

6. Crack down on handouts for politically neat but economically dumb ideas such as sports stadiums, NZ$40 million wharves and railway operators. Be ruthless on public sector spending.

Yup. The White Elephant on the waterfront comes to mind. We are in the worst recession in 80 years or whatever and spending is being slashed left right and centre but we can suddenly have a whole lot of money to buy a wharf and place a giant rugby ball on it for a two week period in 2011.

7. Open up the immigration taps. Population growth, particularly of young skilled migrants, will do an awful lot to kick-start our economy and skew the population imbalance to something more sustainable. Welcome everyone in, regardless of whether they are from China, India, Brazil or Timbuktu. As long as they have some English and are bright, we should open the door.

The last line of this is vital. They must be able to communicate effectively otherwise this policy does to achieve its aims.

8. Convert the NZ Superannuation Fund into individualised accounts that could be transferred to KiwiSaver accounts with other fund managers. This would effectively make KiwiSaver almost compulsory and encourage many New Zealanders to become more financially literate.

Yes. This is one of the things that has kept me out of Kiwisaver, the fact that I will still get superannuation regardless of if I save or not, and also the fact that once you are in you cannot get out. Make everyone in or everyone the ability to come or leave as they can.

9. Set a target size for the government sector (both local and central) in some sort of taxpayers’ rights bill as a proportion of GDP and manage the sector down to that level, which could be, say, 30 per cent of GDP.

I don’t necessarily agree with this, the government needs to spend on what it is committed to and targets for the sake of targets is actually quite a dumb idea, but cut the spending on things that they don’t need to makes a lot of sense.

10. Allocate every adult New Zealander a certain pot of ‘free’ money to spend on fees for tertiary education, particularly for retraining.

Yes. This is better than losing money on interest free loans. Reduce the cost of the course and you reduce the amount of money that needs to be borrowed.

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