Tim Watkin blogs at Pundit:

it’s never been cheaper for the government to borrow money. Although we’ve come up from the all-time low of 3.75% in December, the government can borrow money – by issuing bonds – at  4%. That’s real cheap. Which is why it’s interesting to ask whether National’s missing a trick and its commitment to austerity isn’t coming at the cost of potential investment and growth.

Because really, government debt isn’t the problem; it may be an opportunity. You and I need to save more, that’s unquestioned. But what the country needs from the government and business is some demand side growth – creating value-added products, wagier jobs, and more exports.

Putting aside the quaint notion that the Government, rather than the private sector, creates products, jobs and exports, Tim overlooks what would happen if the Goverment said “Yes, we will be the only Government in the world that thinks it needs more debt, not less, and rather than aim to get back into surplus we will aim to grow debt faster. We are only paying 4% on out debt because of the commitment to get back into surplus. Throw that out the window and those interest rates will rise.

 You might have better ideas that me as to where money could be spent, but some joint venture building houses for first home buyers has been suggested (which could be a way of using the low government debt to help lower our high household debt that the credit ratings agencies are so anxious about)… there’s rail… R&D incentives and more money for the CRIs… export drives… things that will pay off in the long run.

Tim wants the Government to borrow more, to encourage more people to borrow money for homes. Have we learnt nothing from the global credit crisis? This must be the worst idea for sometime, I’m afraid. I’m amazed at how you can have such a relaxed approach to debt – a “Oh lets just borrow lots of money and spend it on nice things”. Would you run your own business like that? Fuck, no.

As for the other examples. The return on rail is basically negative – needs subsidies to be profitable. R&D incentives generally lead to legions of tax accountants reclassifying expenditure as R&D, and more money for CRIs has actually been happening anyway – science and innovation is one of the few areas not frozen for funding.

The reality is that every dollar we borrow means we have to spend more tax revenue on interest on that debt, rather than on stuff like schools and hospitals. Debt is a valid way of funding capital expenditure, but debt should not be used to fund operational expenditure – that is exactly how you end up in trouble.  Even when we back in surplus, the Government will still be borrowing for some capital requirements. But this notion of borrowing billions cheaply to encourage people into property ownership is exactly what caused the problem in the first place.

Tags: debt, Tim Watkin

Tim Watkin has a thoughtful piece at Pundit on the Crafar decision:

Looking at the OIO decision, it’s interesting to note that the deal literally ticks nearly all the boxes; the only fail is its ability to bring new skills and technology to New Zealand. That’s hardly surprising, given our farmers are as good as any in the world.

It’s very clear this was not a marginal call.

The OIO writes it’s also excited by the fact SPGL has “very strong contacts with the supermarket industry” in China, will create two new NZ brands (Nature Pure and Pure 100) and is promising to spend $100m over the next five years promoting New Zealand dairy in Asia.

I actually regard the effective partnership between Landcorp and SPGL as exciting. They have the capital and contacts, and Landcorp has the expertise. This deal could have major opportunities down the road.

What of the OIO’s point about “tacit anti-Chinese bias”, you ask? This sale deserves to be a major news story because of the large amount of land lost to offshore ownership in one go. But let’s be honest, the fact the sale is going to China has ratcheted up the concern and public debate.

Some of that concern is reasonable – we can’t buy land there, China is in the process of buying vast natural resources around the world, and such purchases are made in its national interests, which aren’t necessarily ours. But some of the concern is out-and-out racism.

Last year a German firm got approval to buy 3300 hectares in Southland. Remember the public debate about that deal? No, me neither.

Did anyone complain when Harvard bought our biggest forest? Or when Britons bought up 22,000 hectares of farmland over the past two years?

Of course not all of the opposition to the sale is xenophobic or racist. There are some people who really think that it makes good economic sense to not allow even one hectare of land to be owned by an Australian or Brit. They’re wrong, but they’re consistent.

But the nationality of the buyers was a factor in this case, for many. The examples Tim gives about the German purchase, for example, is a good one.

Labour leader David Shearer in opposing the sale said this week:

“If there is going to be foreign ownership then we have to make sure New Zealanders have a real interest in it and get real value from it. Now I don’t think that this sale here gives us any return.”

The details of this deal make that a hard argument to sustain; there are clearly significant returns to New Zealand. It’s hard to imagine how, under current law, New Zealand could have done better out of this deal. The original New Zealand bidders couldn’t have offered the strategic links into Asia and, I’m sorry, I simply refuse to take seriously a Michael Fay-led anything as a champion of retaining New Zealand assets in local ownership.

The strategic links into Asia are potentially very good for New Zealand.

Having said all that, why am I still uneasy about this sale? Because ownership matters. The owner is boss, keeps the profits, controls the asset. One sale on its own isn’t the end of the world, but added together we’ve sold 170,000ha of farm land in the six years from July 2005 to May 2011, according to this very good piece in Farmers Weekly.

That rises to two percent of our farmland in the past decade, according to RNZ.

If we keep that up over the next century, that’s 20 percent gone.

And I think there is a valid debate about whether there should be some sort of limit on the total amount of land owned by foreign interests. That is preferable to railing against individual deals which in fact make good economic sense.

However I would make the point that any limit should look at more than just sales. Some of the land sold to foreign owners has been resold back to NZ owners. And some of the land sold to foreign owners was already owned by different foreign owners. What would be useful is a time series showing total foreign ownership at annual intervals. I’m not sure though that such data is easily compiled.

Tags: Crafar, foreign, Tim Watkin

Tim Watkin looks at 2010, and annoints his minister of the year:

But it’s Dr Mapp who had the best year of all government ministers, to my mind, capped off with his announcement that he will make a dignified exit at this year’s election.

Mapp handled two crucial reviews in 2010, in defence and science. Neither gave into ideology, nor over-reached. Both showed real nous.

The defence white paper got our future focus about right in terms of naval and regional priorities and didn’t compromise our growing independence in foreign policy while keeping us close to Australia.

And if there’s that the government did in 2010 that will benefit to country in the long-term, it’s the reform of our Crown Research Institutes, which moved their energies away from competing with each other and back to science and ideas. The changes to how we do science here were over-due, could genuinely boost our economy, especially growth and innovation, in the medium-term and were “ambitious for New Zealand”.

Wayne will be getting out on top.

Tags: Tim Watkin, Wayne Mapp

Tim Watkins at Pundit has a good analysis of the mid-terms. I agree with most of it, but want to elaborate on a few points:

Americans have voted out the party in power for three elections in a row. That’s unusual… remember, the Democrats controlled the House for 40 years not so long ago. Lots of Americans seem intent on voting for change again and again until they find what they like.

It is unusual for the House to be so volatile. The Democrats held it for 40 years from 1954 to 1994, and only lost it for four years between 1930 and 1954 also. At the Carter mid-terms the Dems lost 15 seats only. The Reagan revolution saw them lose 35 seats. The the first Reagan midterm saw the GOP lose 26. In 1984 they actually gained 16 and the second Reagan mid term saw a drop of 5 only. Bush I succeeding saw no change – a loss of two only. Bush I mid term saw a loss of only eight and when Clinton won, the Dems actually lost nine seats.

1994 was the famous revolution with 54 seats to the GOP breaking a 40 year drought. It was then very stable – changes were (for GOP) -4, -3, -2, +8, +2 until 206 when they lost 32 seats. 2008 saw a further 21 seats. And then 2010 is looking like a massive 65 seat pickup.

They won’t ever find what they like, because what many are looking for is a more secure world where America ruled the world. They want the 1950s or, at a stretch, the 1980s back. They want to be the dominant power. They want job growth in manufacturing. They want no China or Brazil or Iran or India.

Partly. But also a lot of people don’t want trillion dollar deficits.

• The junior senator for Illinois was too green for the White House and got played by those who revel in the Washington swamp.
• Hillary Clinton would have been a more successful president these past two years.

I agree with both of these points. I don’t think Obama has been a terrible President. He has though performed about as well as I would expect any President whose senior political experience was two years as a Senator (technically four years but he basically started campaigning after two). Senators have little managerial experience – their office staff of 30 or so. Governors have normally managed state governments of tens of thousands.

Obama misread his first two years. He wanted to govern from the centre, and so wasted months on healthcare trying to get bi-partisan support while he was being demonised as a socialist, death-panel-creating monster. If he wanted to start with healthcare he should have rammed it through, given the mandate he had and then tacked back to the centre. Or he should have started with something else.

The irony is that his his eventual reform was so watered down that it does little apart from making it illegal for poor people not to have health insurance. Seriously.

Having the presidency, the House and the Senate doesn’t do the dominant party much good because they cop all the blame for everything.

Yes. And this is why 2012 is far from certain. Having said that the GOP had all three wings in 2002 and got re-elected in 2004. Of course John Kerry helped.

And people will turn on the Republicans, because for all their big talk on spending cuts, the only way to really eat into the deficit is to cut something people love, such as Social Security or Medicare or bombs.

I’m not sure they are as sacred as they used to be. There is a mood for change. The deficit is unsustainable and something must go. The public may reward honesty.

The Republicans claim the American people are calling for a repeal of healthcare and cuts to government spending. That’s a misinterpretation. Spending cuts sound good until they hit your state, your town, your job.

Spending cuts can be unpopular in the short term, but having 1/4 of your tax go on interest payments is even more unpopular. And if taxes are kept low, then private sector activity can replace the government spending.

The Tea Party did OK, but not great. They’re harnessing a mood of protest, but not because even all their supporters know and believe their policies. They’re essentially libertarians and as such remain fringe.

They’re libertarians but with around 25%+ support. Until the deficit comes down, they will remain potent.

Sarah Palin cannot win the presidency.

I agree. But she will probably select the Republican candidate. She has become the endorser in chief.

The economy is likely to be better in 2012, in part because of Obama’s stimulus. He will have a better narrative and a better chance.

Ha, the same stimulus which was going to prevent unemployment from reaching 7.5%, and instead had it reach 10%.

Ex-CEOs such as Carly Fiorina and Meg Whitman couldn’t win, even spending tens of millions of their own cash. Americans hate corporates even more than they hate politicians, it seems.

Actually it shows that money does not buy elections, so we do not need repressive laws to prevent people from having their voices heard.

Tags: Tim Watkin, United States

Tim Watkin at Pundit looks at what to expect:

First, Maori will be wanting a single, national settlement, but one that can be negotiated hapu-by-hapu. It’s extended family units rather than whole iwi that have the strongest connections to this or that part of the coastline; that’s where the legal relationship should be defined.

I think Tim missed a not before “a single, national settlement.

A hapu based approach is sensible, as under the common law, you have to show customary use.

Next, there’s little chance of Maori winning simple fee title – at this stage at least – over the foreshore and seabed they say has belonged to them since humans first arrived on these islands. But then most Maori aren’t demanding that. Maori ‘ownership’ will be restricted to guardianship; they won’t be able to sell or buy the land. It will be held in some form of customary title that is inalienable.

And there was very little chance of a court granting simple fee title. One reason Labour did not need to panic and legislate.

How might they do that? One idea that I’m told has been part of negotiations – and I’ve had this from several sources – is ‘tipuna title’ (tipuna meaning ancestor). That is, the foreshore and seabed in question would be ‘owned’ not by anyone living, but by a hapu’s primary ancestor. That way it can never be sold. However it’s also been suggested to me that National may have ultimately poured cold water on the concept.

That could be interesting. Some may say this is all just symbolism – but symbolism can be incredibly important.

For one Maori friend I spoke to a few months ago spoke with real feeling about the relationship he and his family have had with an estuary for more than 600 years; they just want that relationship to continue. They would never sell. Indeed, rather than sell, they may exploit and develop. As I wrote a few months back, it’ll be interesting to see how the government deals with the issue of commercial development of these natural resources.

Commercial use is part of what drives this. Who gets to farm for mussels etc?

Which suggests that one of the most surprising things to stem from this ‘repeal’ could be just how little the law actually changes. While fundamental new interpretations will be needed, everyone involved will be keen to ensure as little political and legislative upheaval as possible.

It is possible the law changes will not be mammoth. But there is a difference between a law change negotiated in good faith between two parties, and a law change unilaterally announced three days after a court case has been lost by the Govt.

Tags: Pundit, seabed & foreshore, Tim Watkin